More than 100 asset managers submitted applications to the US Government to buy up to $1 trillion worth of toxic assets from the troubled banking sector.

The Treasury said that the applicants included traditional fixed income fund managers, property funds and alternative asset managers such as hedge funds.

At least five of the applicants will be approved on May 15, clearing them to raise $500 million or more each from private investors. The cash will be matched by taxpayers and invested in so-called legacy securities.

A second set of funds will be established to buy legacy loans from the banks.

The funds are part of Treasury Secretary Timothy Geithner's public-private partnership plan to take illiquid and non-performing assets such as mortgage and securities backed by mortgages from banks' balance sheets, to free up the banks' ability to lend to consumers and businesses.

The Treasury fears that these toxic assets are currently hindering America's economic turnaround and has set aside $100 billion from the Troubled Asset Relief Program (Tarp), plus additional funding from the Federal Reserve, to buy the assets alongside private investors.

Mr Geithner said that the partnerships would aim to buy $500 billion worth of assets but could be extended to purchase as much as $1 trillion of loans and securities.

To qualify as an applicant, the fund managers must currently have $10 billion or more in assets under management.

The Treasury said today that it was considering opening up the plan to smaller fund managers in the future.

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