Healthy U.S. banks were strong-armed into participating in a $700 billion federal bailout of ailing financial firms, BB&T Corp. (BBT) Chairman John Allison said in a speech late Thursday to the Competitive Enterprise Institute.

BB&T is one of 10 banks poised to return funds received through the Troubled Asset Relief Program, or TARP, a gesture that produced a standing ovation for Allison from the libertarian audience.

"It was a huge rip-off for us," said Allison. He complained that the Winston-Salem-based bank was paying 9% on federal borrowing "we didn't want in the first place."

Federal officials used TARP to shore up weak financial firms saddled with soured mortgages and mortgage-backed securities, Allison charged. He said regulators didn't want weak banks to fail and forced healthy firms to take part in the bailout program as well, an approach he said is at odds with "the American sense of life."

Allison blamed the financial crisis in part on the Federal Reserve, saying it kept interest rates too low for too long, encouraging excessive risk-taking.

Federal policies to expand home ownership to high-risk borrowers, including through government-sponsored mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), and inadequate oversight by bank regulators also contributed to the financial debacle, Allison added.

Allison rejected the notion that deregulation was a factor, and said in his view, U.S. financial firms have been "misregulated," not deregulated.

Looking ahead, Allison predicted the U.S. would see "some kind of economic recovery," at least in the short-term, although he said banks such as BB&T aren't lending to the extent they would like "because the regulators are all over us."

"It's a myth that regulators are encouraging banks to make loans," said Allison.

Allison's comments came hours after Bank of America Corp. (BAC) Chief Executive Kenneth Lewis testified to Congress about whether officials at the Fed or the U.S. Treasury Department pressured him late last year to complete an acquisition of Merrill Lynch & Co. Lewis told House lawmakers that he was "strongly advised" by federal officials but he rejected suggestions that they acted improperly.

-By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns@dowjones.com

(Michael Crittenden contributed to this report.)