Treasury secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke have been grilled by the House of Representatives panel over the handling of AIG bonuses.

Lawmakers summoned the top two US finance officials to Capitol Hill amid public outrage over the $182.5bn federal bailout of AIG.

The New York-based insurer paid $165m in bonuses to employees of the division that triggered the rescue less than two weeks after reporting a $61.7bn fourth-quarter loss.

It emerged at yesterday’s hearing in Washington that Mr Bernanke had sought a lawsuit to halt bonus payouts to AIG’s financial products division but decided not to pursue the action following legal advice.

He also defended the US government’s decision to pump billions into AIG, effectively making it an 80% shareholder.

“Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs,” Mr Bernanke said.

Meanwhile it has emerged that nine of the 10 people receiving the largest awards, which ran to millions, have agreed to return their bonus.

It means that 15 of the 20 top executives who got massive bonuses despite the company needing billions from the US government to survive have agreed to forego the payments.

The U-turn follows a storm of criticism and some arm-twisting from New York attorney general Andrew Cuomo who revealed that in total AIG employees are to return about $50m of the $165m in bonuses awarded earlier this month by the troubled insurer. Mr Cuomo said he still hoped that more AIG employees will return their bonuses. However, the most his office could hope to recoup was $80m.

“We are deeply gratified that a vast majority of financial products' senior leadership have expressed a willingness to forsake their recent retention payments,” said an AIG spokeswoman.

She added that the company was continuing to review the responses of the other employees.

Separately, officials in Connecticut, where AIG's financial products division is based, have taken a court order out against the company to see the contracts and names of employees who received the bonuses.

Documents provided by AIG to the Treasury Department said the awards ranged from $1,000 to nearly $6.5m. Seven employees were to receive more than $3m between them.