Nine banks and Wall Street firms that accepted $125 billion in taxpayer-funded cash injections are now being asked to justify already paid and planned compensation packages amid allegations the bailout will lead to inflated bonuses this year.

The firms including CitiGroup, Merrill Lynch and Morgan Stanley received letters from chairman of the Committee on Oversight and Government reform, Henry Waxman, requesting specific details of compensation payments.

Mr Waxman said the nine firms have spent or reserved $108 billion for employee compensation and bonuses in the first nine months of 2008, nearly the same amount as last year.

“Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds,” the letter stated.

The cash injections were part of the government's $700 billion bailout programme recently passed by Congress following the collapse of the mortgage market.

“While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record,” Waxman said.

The Waxman letter quoted articles that suggested, had it not been for the government's help in refinancing their debt, the firms in question may not have had the cash to pay bonuses.

The letter was also sent to Goldman Sachs, Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo.

The firms were asked to report no later than 10 November compensation paid and planned to be paid during the past three years broken down by salaries, bonuses (cash and equity), and benefits.