The US government's toxic assets plan will force banks such as Citigroup, Bank of America and Wells Fargo to take large writedowns on their loans, requiring them to raise more capital from taxpayers or investors, executives and analysts have warned.

Senior bankers say the authorities' latest drive, announced on Monday, to cleanse financial groups' balance sheets by encouraging investors to buy troubled residential and commercial mortgages will prompt banks to record losses on those portfolios.

The government will use its forthcoming “stress tests” to force banks to take more aggressive provisions on these loans, creating a stronger incentive to sell. This process will increase the pressure on banks that have large loan portfolios to raise fresh funds from investors or the government if capital markets remain frozen.