This GAO chart plainly demonstrates that sub-prime and Alt-A loans clearly peaked after 2003.

The special liquidity scheme, which allowed banks to swap hard-to-sell assets such as sub-prime loans for more liquid government bonds, is due to expire next year.

The bank will pay $8.5bn in cash to settle the claims and set aside $5.5bn for further possible liabilities tied to sub-prime loans.

Most of the people issuing sub-prime loans were loan officers at mortgage lending firms, such as Ameriquest and New Century, who were paid on commission.

There was a sharp increase in sub-prime loans in 2006.

The investment banks preferred sub-prime loans, as they earned high revenue due to high risk; poorer ratings yield higher interest rates.

But it is difficult to make that distinction if regulatory requirements use the interest rate on the loan as a proxy to identify sub-prime loans.

"These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to sub-prime loans," he said.

"These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to sub-prime loans, and misled the market about the amount of risk."

The sub-prime loan involved a first and second mortgage, and investigators later theorized the motive was to obtain money from the home's equity.