Allied Irish Banks (AIB) has backed down in the row over bonuses it still wanted to pay staff despite being saved by £3bn of Irish taxpayers' money.The lender today confirmed employees will not now share the pot of about €40m (£34m) for work done in 2008 before the financial crisis brought down the banking sector.Lawyers had told the bank it was obliged to pay the bonuses, but finance minister Brian Lenihan has written to AIB telling of a decision to legislate which overtakes this obligation. Last month, former banker John Foy won his case arguing that he was entitled to a bonus of €160,000 based on how he'd done in 2008.But Lenihan warned AIB there would be no further state funding unless its stopped the payments, no matter when they were earned. Without government support, the bank would already have gone under, and it acknowledged today that it will continue to rely on this support "for some time to come"."The board of AIB very much welcomes the actions of the Minister and is relieved to be in a position not to pay these bonuses," executive chairman David Hodgkinson said Tuesday. "We are determined to position the bank to play a full role in the recovery and development of the Irish economy. In doing so, we are committed to treating our customers, staff, the taxpayer and the public in a fair and transparent manner".The spat comes at a tough time for the Irish economy. The country last week passed a harsh austerity Budget, laying out government plans for a shake-up of the income tax system and hefty benefit cuts.