The two primary watchdogs of the U.S. financial bailout program are studying whether taxpayers will get a fair return on banks' warrants as the largest firms repay government investments, according to a letter sent to lawmakers this week.

A Congressional oversight panel has begun a project to estimate a reasonable range of values for the controversial warrants the big banks are likely to repurchase as they start to repay Troubled Asset Relief Program (TARP) funds next week.

Some big banks, including JPMorgan Chase & Co , are wrangling with the Treasury Department over the billions of dollars of warrants they want to buy back, which the government owns in addition to the banks' preferred stock.

The banks argue they should get a discount on the warrants because they did not want the money in the first place, while some lawmakers say Treasury should give taxpayers their fair share of the gains in the banks' stock prices.

In a letter dated Wednesday to the leading lawmakers on the House and Senate financial committees, Neil Barofsky, the TARP special inspector general, and Elizabeth Warren, the chairwoman of the Congressional oversight panel for TARP, said they will work together on the warrant project. It will also include an audit of the warrant repurchase process, they said.

Barofsky and Warren said they believe that the pricing of the warrants held by Treasury ... will be critical to ensuring an appropriate return on investment for the government and, consequently, American taxpayers.

Ten of the largest banks are set to pay back in the coming days almost $70 billion of TARP funds, which many of the banks have called onerous due to the public stigma of the program and restrictions on executive pay and dividend payments.

Treasury has made it clear that the banks can exit TARP by buying back the preferred shares without necessarily redeeming the warrants, said Wayne Abernathy, executive director for financial institutions policy at American Bankers Association.

But the banks would risk diluting their current shareholders if they did not buy the warrants back. Abernathy said they would also be stuck with a lingering reminder that they were under a government program.

Treasury has said it will sell back the warrants at fair market value, but experts say the pricing could be difficult because there are not directly comparable market instruments. That means banks could negotiate on buyback prices.

A Treasury spokesman did not respond to a request for comment about the department's policy on valuations.

Treasury is facing pressure from lawmakers, who want to make sure taxpayers see the upside promised to them when the government announced in October that it was making investments in the biggest banks.

On Tuesday, Jack Reed, a leading Democrat on the Senate Banking Committee, discussed the warrants issue with Treasury Secretary Timothy Geithner and urged him to make sure taxpayers are paid their due.

(Reporting by Karey Wutkowski and Patrick Rucker, editing by Gerald E. McCormick)