He argued the failure of AIG would have posed "unacceptable risks" to the overall U.S. economy, and might have provoked a "global financial meltdown."
Bonuses to AIG executives covered about $165 million and caused a firestorm of controversy.
Last week, the House hastily approved a bill to tax executive bonuses at AIG at about 90 percent. Similar legislation is pending in the Senate.
New York Attorney General Andrew Cuomo has been tracking the AIG bonuses. Monday, Cuomo announced that 15 of 20 top U.S. executives at AIG have returned the bonuses.
In the hearing of the House Financial Services Committee, Bernanke and Treasury Secretary Tim Geithner called for sweeping regulatory reforms in financial markets.
Geithner argued the U.S. government did not have the appropriate authority or regulatory tools to deal with the Wall Street meltdown.