Bank of America (BAC) could lose a lot of business if officials in the state of Illinois and the city of Chicago have their way.

Anger over job layoffs at a Republic Windows & Doors factory in Chicago has led Illinois Gov. Rod Blagojevich to call for state agencies to suspend business with Bank of America.

About 250 workers have been camping out at the plant since Friday, arguing they are owed pay and benefits. President-elect Barack Obama expressed support for the workers, saying they deserve any compensation owed to them. The workers want a severance equal to 60 days pay and unused vacation time.  

The move by the governor, orchestrated during a press conference Monday, comes amid his arrest Tuesday. Blagojevich and his Chief of Staff John Harris were taken into Federal custody on corruption charges. It’s not clear what impact the arrests will have on the push to halt business with Bank of America.

Workers at the Republic Windows & Doors plant, most of whom are unionized, are outraged and blame Bank of American for getting axe. The workers were told last week the plant would close Friday because Bank of America said it would cut off financing. The workers are angry since Bank of America is a recipient of federal money under the Troubled Asset Relief Program, which is designed in part to free up credit to businesses. Bank of America got $15 billion of TARP funds and is expected to get $10 billion more.

That outrage quickly prompted politicians including Blagojevich to jump on the anti-Bank-of-America bandwagon calling for a halt in business with the bank. The Wall Street Journal reported  15 Chicago aldermen or city council members said they were gearing up to introduce a city ordinance next week that would require Chicago to suspend business with Bank of America and require the city to withdraw all funds and deposits with the bank or any of its subsidiaries.

In a statement Bank of America said its talking to Republic management to see how it could resolve the issue but noted its not the lender’s responsibility to direct management of a company on how to mange its affairs and tell it what obligations should be paid. The Wall Street Journal reported on Monday union members, Bank of America representative and factory management held a meeting in hopes of reaching a settlement

While it’s easy to blame Bank of America for the plant closing,  especially in this environment of corporate greed and bailout fatigue, some industry observers said its not the lenders role to ensure the employees get paid.

“I think we would all like to see these people get paid,” said Robert Topel, an economics professor at the University of Chicago.  But it’s not Bank of America’s responsibility to monitor which loans the company pays back, he said, noting it’s likely that others didn’t get paid from the company. “Bank of America’s responsibility is to its shareholders and to the economic system more broadly.”

What’s more, given Bank of America is a recipient of TARP funding, it’s in the best interest of taxpayers to make sure Bank of America uses that funding responsibly and doesn’t continue to extend credit to a company that will end up failing anyway. Commercial banks have been restricting lending for months now as the financial crisis makes its way from Wall Street to the broader economy. “Isn’t it how we go there,” said Topel of the economic crisis. “People extending credit to those who couldn’t pay it.”

According to reports, Republic told Bank of America in October it planned to stop manufacturing in January.

Charles Wheelan a former professor of public policy and economics at the University of Chicago who is now running for the vacant congressional seat left by Rahm Emanuel, who was tapped to be Obama’s Chief of Staff, said politicians shouldn't be targeting Bank of America in this instance.

“It’s all too typical of the need to find a villain even when it’s more complex,” said Wheelan. Wheelan said a broader response is needed rather than targeting one particular factory. Nevertheless, he said the movement against Bank of America is likely to lose steam with the arrest of Blagojevich. 

“It becomes the third or fourth ring in the circus,” he said.

Bank of America said in a statement it continues to honor all its agreements with Republic and provided the maximum amount of funding it could under the terms of the agreement.

“By any objective measure, Republic Windows and Doors are unable to operate profitably given the challenges of the current economic climate and its industry. Public statements by management of the company have made this clear,” said Bank of America. “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. It is unfortunate that the company has been unable to reverse its declining circumstances."