(Updated with final stock price moves throughout.)Financial stocks finished mostly lower Thursday, with Bank of America ( BAC) shares slipping after former Treasury Secretary Henry Paulson testified before Congress and JPMorgan Chase ( JPM) losing ground following its second-quarter earnings report. The House Committee on Oversight and Government Reform grilled Paulson Thursday on his role in the BofA- Merrill Lynch deal. In his remarks, Paulson said he did threaten to remove BofA's management if it walked away from Merrill Lynch, calling the threat "appropriate" because their invocation of a Material Adverse Change, or MAC, clause would have shown "a colossal lack of judgment." However, Paulson did tell the committee that he did not advise the CEO to hide any information from shareholders, and that he believed that BofA scrapping the Merrill deal would have caused havoc for the broad financial system. BofA CEO Ken Lewis testified in June that he considered scrapping the transaction because of "significant accelerating losses," but that Treasury and Federal Reserve representatives asked him to delay any such action. Last month, Fed Chairman Ben Bernanke appeared on Capitol Hill to defend his role in the acquisition of Merrill, downplaying the regulators' influence. In other BofA news, the bank is operating under a memorandum of understanding that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to a report in The Wall Street Journal. The MOU gives banks a chance to work out their problems without the glare of outside attention, the report notes, citing people familiar with the situation. BofA shares finished lower by 25 cents, or 1.9%, to $13.17. The bank will report earnings Friday before the start of trading, with analysts expecting a profit of 28 cents on revenue of $33.1 billion, according to Thomson Reuters.