WASHINGTON (Bloomberg) — American International Group Inc.'s payment of bailout funds to banks should be reviewed by congressional auditors to determine whether the Federal Reserve Bank of New York got the best deal for taxpayers, two Democratic lawmakers said.

Auditors should review whether the decision by the New York Fed to fully reimburse banks that bought derivatives from AIG "left money on the table," Congressmen Edolphus Towns of New York and Elijah Cummings of Maryland said in a statement yesterday. The lawmakers said they sent a letter to the Government Accountability Office asking for a review.

Federal Reserve chairman Ben Bernanke invited the GAO this week to review the AIG rescue after e-mails released by Darrell Issa, the ranking Republican on the House Oversight and Government Reform Committee, showed that the New York Fed asked the insurer to limit what the public knew about AIG's payments to banks. The New York Fed provided 250,000 pages of documents to the committee this week.

The payments have been called a "backdoor bailout" by lawmakers because banks, including Goldman Sachs Group Inc. and Societe Generale SA, were reimbursed at 100 cents on the dollar for mortgage-linked securities that had declined in value. The New York Fed made "limited efforts" over two days in November 2008 to ask banks to accept less than full value on the bonds, according to a report from Neil Barofsky, the special inspector charged with policing the US Troubled Asset Relief Programme. The GAO should investigate "who made the decision to pay the counterparties at par, and on what authority", according to the statement from Towns, who is chairman of the oversight panel, and Cummings, who led criticism last year over AIG's bonus payments.

A GAO audit would widen the investigation into regulators' handling of the bailout of AIG, once the world's largest insurer. Treasury Secretary Timothy Geithner, who helped orchestrate the first AIG bailout in September 2008 while he was president of the New York Fed, made the decision to pay banks 100 cents on the dollar for their AIG swaps, according to Barofsky's report.

AIG's first rescue was an $85 billion credit line from the New York Fed. The bailout was expanded three times and is now valued at $182.3 billion. That includes a $60 billion credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company.