BBC correspondent Paul Reynolds reports on the impact of the proposed sanctions

The State Treasurer in California, which has about $2bn on deposit in Swiss banks, said his state would announce some form of action on Thursday, but did not give details. Other sanctions are expected to come into effect in stages.

The US federal government is opposed to such sanctions.

Switzerland's two largest banks, Credit Suisse and UBS, expressed outrage at the decision.

The banks issued a statement calling the sanctions unwarranted, counter-productive, unconstitutional and illegal. They said the banks would not be pressured into paying exorbitant and unwarranted sums of money that they claimed bore no relation to the facts.

The Swiss government is to lodge a complaint with the US

The Swiss Government has said it will file a complaint with the US Government, arguing that the sanctions violate global trade rules.

The Swiss banks have so far failed to reach agreement with groups representing the relatives of holocaust victims over the question of compensation.

Jewish organisations are seeking $1.5bn to cover all claims by relatives and descendants of holocaust victims, who say the banks retained family assets.

The banks however have offered only $600m.

American finance officials have been threatening to impose sanctions on Swiss banks for several months, but they postponed taking action until the banks had considered the $1.5bn settlement proposed by the Jewish groups.