Meanwhile, Barney Frank, D-Mass., chair of the House Financial Services Committee, sent a letter to Treasury Secretary Timothy Geithner and Federal Reserve Board Chairman Ben Bernanke, asking them to investigate whether foreign institutions received preferential treatment over U.S. banks.

Rep. Frank said he asked for the investigation because he has received a letter from the committee's ranking minority member charging that foreign institutions, which were counterparties to AIG, were paid in full while U.S. banks, which were also AIG counterparties, are now being asked to accept "severe reductions in the debt owed them."

The letter Rep. Frank forwarded from Rep. Spencer Bachus, R-Ala., said, "I am being told in some cases that…U.S. banks are being asked to accept reductions of over 70 percent of the total debt owed them."

In asking for the investigation, Rep. Bachus said the "disparity in treatment between foreign banks and U.S. banks is troubling, particularly since the U.S. banks now being asked to take such reductions are some of the very taxpayers that have been funding AIG."

In addition to the "clear inequity involved, this conduct obviously runs counter to our efforts to stimulate credit in the U.S. economy through bank lending," Rep. Bachus said in his letter.

In his letter to Secretary Geithner and Chairman Bernanke, Rep. Frank said, "I do not know what basis there is for the point he [Rep. Bachus] makes, but it is a serious issue and must be addressed.

"Clearly, any discrimination against American-owned financial institutions compared to the treatment being received by foreign-owned institutions would be unacceptable to the Congress, and I believe to the American public," Rep. Frank wrote.

Earlier in the week, Neil Barofsky, Special Inspector General of the Troubled Asset Relief Program, disclosed probes into bonus payments in testimony about his oversight of the TARP program before the Senate Finance Committee.

Last Tuesday, Mr. Barofsky said his office is coordinating with the DOJ on the options available to recover the bonuses paid AIG executives. He also said his agency has an audit underway that seeks to determine the federal monitoring and enforcement of executive compensation restrictions imposed as a condition of federal financial assistance to organizations such as AIG.

As part of this audit, he said, "we will be looking closely to ensure that the bonuses to AIG employees are not inconsistent with AIG's legal or contractual obligations."

He said he also plans to report to Congress "the sequence of events" which led to the approval of these payments by government officials, including the general approval of retention payments in AIG's agreement with Treasury in November 2008 when Henry Paulsen was Treasury secretary.

"To the extent that we find that there were miscommunications among AIG, Treasury and Federal Reserve officials regarding these payments, we will make recommendations to ensure that all parties involved in TARP-related programs effectively communicate with one another," he said.

HOUSE ACTS, PENSION FUNDS REACT

Separately, on Wednesday, the House in a 247-171 vote passed a bill to restrict bonuses paid to executives of any companies that receive federal bailout money from TARP. The bonus restriction bill, which was introduced by Rep. Alan Grayson, D-Fla., a member of the House Financial Services Committee, prohibits "unreasonable and excessive" compensation as determined by the Treasury Department and financial regulators and compensation not based on performance standards.

Also on Wednesday, three pension funds asked government trustees overseeing the U.S. loan to AIG to withhold their support for an AIG board member who served on the company's compensation committee.

Officials from The American Federation of State, County and Municipal Employees union, the AFL-CIO and the Treasurer of the state of Connecticut sent a letter to the three trustees asking them not to vote for James Orr III, a director at AIG.

In the letter, they said Mr. Orr was a member of the company's Compensation and Management Resources Committee during the time "when it approved of the structure and the payouts for AIG senior executive compensation and retention plans" to those executives "who were culpable for massive losses incurred by the credit default swaps."

While the trustees do not have control over the day-to-day functions of the company, as representatives of the majority shareholders, U.S. taxpayers who are fronting the $85 billion loan to AIG, they do have the ability to effect change in the company as shareholders.

The letter, directed to Jill M. Considine, Chester B. Feldberg and Douglas L. Foshee, noted the furor recently caused by the $160 million in bonuses paid to executives at AIG Financial Products group and other examples of what it says are unjustified compensation to executives.

The letter noted the payment of $34 million to Joseph Cassano, head of the financial products unit, and the $1 million per month salary as a consultant after he left the company in February after AIGFP had brought the company to its knees through multibillion-dollar losses from investments in credit default swaps.

It also noted the $47 million severance given to Martin Sullivan, the former chief executive officer of AIG, after he resigned, and $22 million in severance to Mr. Sullivan's successor, Robert Willumstad. After leaving as CEO Mr. Willumstad returned the money saying he did not deserve it.

The three trustees, appointed in mid-January by the Federal Reserve Bank of New York, receive $100,000 a year for their services from the trust established to oversee the loan agreement with AIG.