Appearing on CBS' The Early Show Wednesday, the Massachusetts Democrat said the Federal Reserve invoked a statute dating back to 1932 when they gave the troubled insurance giant a direct loan of $85 billion in September.
"There was no congressional involvement," he told Early Show anchor Maggie Rodriguez. Frank, who chairs the House Financial Services Committee, said because Congress lacked oversight, no restrictions were placed on the loan.
But if Frank gets his way, that will never happen again.
"It is my hope that before too much further, we will amend that statute. That's far too much power for them to have," he said.
Frank said the 1932 law was created under President Herbert Hoover and gave the Federal Reserve the power to lend money to any entity it felt necessary.
AIG has come under fire for doling out $165 million in bonus money, in some cases to people who no longer work at the company, after taking roughly $170 billion in taxpayer money.
CEO Edward M. Liddy is scheduled to appear before Congress Wednesday, where he's expected to be grilled on the bonuses.
Frank is one of many voices on Capitol Hill expressing outrage over the bonuses, and many are calling for the money to be returned.
In a letter to House Speaker Nancy Pelosi Tuesday, Treasury Secretary Timothy Geithner said the money could be recouped by taking it out of the most recent $30 billion being given to AIG. But that may not be enough to satisfy lawmakers.
"No, and we're not stopping at that," Frank said. "There are going to be multiple attacks here."
Frank said one of the government's priorities must be to "reassure people we have prevented this sort of thing from happening again."
Since the original round of bailout loans, Frank touted Congress' increased oversight and said that some banks have even rejected government aid because of the tight restrictions placed on the loans.