A pedestrian walks past a Bank of America ATM in Charlotte, North Carolina April 18, 2012.

New York - Bank of America put $13 billion on the table in negotiations with US authorities over a mortgage-linked securities settlement, although negotiations are far from over, a source familiar with the matter said Wednesday.

Bank of America, the second largest US bank in terms of assets, had been in talks for several months with the Justice Department when it made the offer Tuesday during a meeting with federal prosecutors, the source told AFP, confirming reports in The Wall Street Journal.

The Department of Justice, however, has demanded $17 billion from the bank, US media reported.

Negotiations between the two had become deadlocked in mid-June, but the resumption of talks were not an indication that they were headed towards a settlement, the source said.

Bank of America has expressed its desire to pay for large parts of the settlement under structuring that would allow for payment of damages to clients in different forms, such as consumer relief.

The Department of Justice alleges that Bank of America profited from mortgage-linked securities that sank in value after the housing bust, generating billions of dollars in losses for investors who bought them.

These toxic loans were related to complex financial products.

The penalty would be equal in value to a record $13 billion settlement between the Justice Department and JPMorgan Chase concerning high-risk mortgage securities it sold ahead of the housing bust.

Earlier, Bank of America reported a 43 percent drop in second-quarter earnings weighed down by heavy litigation costs in the aftermath of the housing bust.

Earnings fell to $2.0 billion in large part due to $4 billion in litigation expenses.

The talks follow Bank of America's agreement in March to a $9.5 billion settlement with the Federal Housing Finance Agency over mortgage-backed securities it sold to mortgage giants Freddie Mac and Fannie Mae. - Sapa-AFP