US state and federal authorities have begun settlement talks with Germany's Commerzbank and Deutsche Bank over their dealings with countries blacklisted by the US.

This is according to a source with direct knowledge of the regulatory investigations. 

The settlement talks have just begun and the timing of the deal is unclear at this time, the person told Reuters. Deutsche Bank and Commerzbank declined to comment. 

The New York Times first reported that the settlement talks with Commerzbank were on and a deal could be struck as soon as this summer. 

Commerzbank, accused by US authorities of transferring money through its US operations on behalf of companies in Iran and Sudan, could pay at least $500m in penalties, the New York Times reported. 

Germany's second biggest lender would likely face a so-called deferred prosecution agreement that would suspend criminal charges in exchange for the financial penalty and other concessions, the report said. 

A potential deal with Commerzbank, which is expected to pave the way for a separate settlement with Deutsche Bank, would pale in comparison to the deal with France's BNP Paribas, the newspaper said. 

Last week, French bank BNP Paribas pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve accusations it violated US sanctions against Sudan, Cuba and Iran, a severe punishment aimed at sending a clear message to other financial institutions around the world. 

Commerzbank had €934m at the end of 2013 as provision for litigation risks, including a possible US probe into whether the bank breached sanctions. 

Reuters reported last week that Deutsche Bank, Banamex USA, the US arm of Citigroup's Mexican banking group Banamex, and two major French banks - Credit Agricole and Societe Generale are among those being investigated for possible money laundering or sanctions violations. 

However, talks with the two French banks were not on the front burner, the source told Reuters. 

Numerous other banks, including Standard Chartered, Lloyds Banking Group and Credit Suisse Group have previously settled with US authorities over allegations they violated sanctions.