The claims relate to the banking giant's handling of residential mortgage backed securities (RMBS) from 2005 to 2007.

HSBC, which revealed the scale of the expected settlement in August, becomes the latest big bank to agree a fine over the sale of toxic debt in the years leading up to the crisis.

It follows a $4.9bn penalty for Royal Bank of Scotland and a $2bn pay-out for Barclays.

Bob Troyer, US attorney for the District of Colorado, said: "HSBC made choices that hurt people and abused their trust.

"HSBC chose to use a due diligence process it knew from the start didn't work. It chose to put lots of defective mortgages into its deals.

"When HSBC saw problems, it chose to rush those deals out the door. When deals went south, investors who trusted HSBC suffered.

"And when the mortgages failed, communities across the country were blighted by foreclosure."

The DoJ alleged that loans reviewed before being packaged up for sale were sometimes waved through or recategorised.

One trader was said to have remarked of one investment that it was about to issue that "it will suck".

A loan pool purchased by HSBC in 2006 was said to have had an "abnormally large" number of defaults - where a borrower failed to make payments on mortgages.

Concerns were expressed within the bank that the pool "may be contaminated" but a manager said he was "comfortable that we need not make any further disclosure to investors", the DoJ said, and HSBC issued the securitisation a few days later.

A later review indicated that the loans that appeared to have fraud in them had gone into the securitisation but HSBC went on to buy and package up more loans from the same source.

Responding to the DoJ announcement on Tuesday, Patrick Burke, president and chief executive of HSBC USA, said: "We are pleased to put this investigation related to activity that occurred more than a decade ago behind us.

"Since the financial crisis, HSBC has been strengthening our culture, processes and internal controls to ensure fair outcomes for our clients.

"The US management team is focused on putting historical matters into the rear view mirror and completing the turn-around of HSBC's US operations."