Dec. 8 (Bloomberg) -- Illinois Governor Rod Blagojevich said the state will suspend business with Bank of America Corp. until the lender restores credit to the shuttered Republic Windows & Doors company in Chicago where workers are staging a sit-in.

Blagojevich, a Democrat, spoke at a news conference today after meeting with employees who remained at the factory since Dec. 5, when it closed following the bank’s cancellation of its credit line. Illinois does “hundreds of millions of dollars” in business with the bank, he said. The Illinois Department of Labor will sue the manufacturer if Republic doesn’t respond to employee requests for vacation and severance pay, the governor said in a press release.

Commercial banks have restricted lending as ripples from the financial crisis that began on Wall Street widen into the broader economy. More than half a million U.S. jobs were lost in November and economists have drawn a direct link between the deepening recession and the seizure in credit markets which has so far resulted in $981 billion in writedowns and losses globally.

Cook County Commissioner Mike Quigley will introduce an ordinance to block the state’s biggest county from doing business with Bank of America, he said in an interview.

“I’m usually cautious, but this is an extraordinary example at an extraordinary time,” Quigley said. “When you talk theory, they nod and wink, but when you put in an ordinance, they know you are serious.”

The protest by members of the United Electrical, Radio and Machine Workers Union has received support from President-elect Barack Obama, who said at a news conference in Chicago yesterday that the 250 workers are justified in demanding their benefits and pay.

Bank’s Government Funds

“I think they’re absolutely right,” said Obama, who gave up his U.S. Senate seat from Illinois last month. “I think that these workers, if they have earned these benefits and their pay, then these companies need to follow through on those commitments.”

The sit-in has attracted attention of the Reverend Jesse Jackson and Representatives Luis Gutierrez and Jan Schakowsky of Illinois.

Bank of America isn’t empowered to tell a company’s management how to manage its business, spokeswoman Julie Westermann said today. Republic is unable to operate profitably in the current economy, she said.

State Treasurer’s Meeting

“Bank of America has worked with the company and shared our concerns about the company’s situation and its operations for the past several months,” she said. “It is unfortunate that the company has been unable to reverse its declining circumstances.”

Illinois State Treasurer Alexi Giannoulias met with Bank of America officials and others today regarding closing of Republic Windows & Doors. “We’re here today to figure out what the right thing to do for the people of Illinois is and for the workers,” he said before entering the meeting.

Republic Windows told the bank on Oct. 16 it planned to cease manufacturing in January after losing $5.7 million during the first nine months of this year and a total of $12.7 million in 2007 and 2006, according to a Business Wire press release issued by the company. The bank last month turned down Republic’s request to issue vacation pay to its employees, the release said.

The company faced “the impossible position of not having the ability to further reduce fixed costs, coupled with severe constrictions in the capital debt markets and an unwillingness of the current debt holder to continue funding the operations,” according to the release.

Government Involvement

“Everyone would like to see these workers get paid, but Bank of America has to be able to stop lines of credit,” said Robert Topel, an urban and labor economics professor at the University of Chicago.

Government involvement caused by worsening economic conditions, such as the pending investment to support the three U.S. automakers, is empowering politicians to make increasing demands, Topel said. “The idea that the governor or Congress may micro-manage all of these decisions on how to allocate resources is just silly.”

Bank of America has received $15 billion from the U.S. Treasury as part of its effort to boost capital, while Merrill Lynch & Co. is receiving $10 billion. Bank of America is buying the world’s largest securities brokerage in a transaction likely to be completed later this month.

Those funds were intended to extend credit to Republic Windows and other companies, thereby retaining jobs, Blagojevich said at the news conference. “Bank of America has yet to stand up and keep these workers working,” he said.

Bank of America last year became the Chicago area’s second largest bank, based on deposits, after buying LaSalle Corp. from ABN Amro NV. JPMorgan Chase & Co. is the biggest bank in the area.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: December 8, 2008 18:07 EST