The US Department of Justice has decided not to prosecute Goldman Sachs over its marketing of high-risk mortgage securities, despite a damning report into its practices by a senate investigation panel.

In April last year, following a two-year inquiry, senators concluded the Wall Street investment banking giant misled clients ahead of the US financial crash by off-loading securities its traders fully expected to lose value.

Releasing the report last year, the head of the investigative committee, Senator Carl Levin, recommended that charges be brought.

"In my judgment, Goldman clearly misled their clients and they misled Congress," he said.

But on Friday, the Justice Department came to a different conclusion.

"There is not a viable basis to bring a criminal prosecution with respect to Goldman Sachs or its employees in regard to the allegations set forth in the report," it said in a statement.

The statement said its investigators had closely scrutinised the senate's evidence and conducted inquiries and witness interviews of its own, and concluded it could not prove wrongdoing.

Apparently anticipating criticism for letting one of the banks seen as deeply at fault in the 2008 crisis off the hook, the Justice Department insisted it has fiercely pursued other cases against financial giants.

The senate report concluded Goldman and other banks had sold clients collateralised debt obligations - investments based on bundles of often risky home loans - despite believing they were likely to lose value.

The crash of 2008 wiped billions of dollars off the value of the widely-held CDOs, and savaged the balance sheets of investors in them, especially banks which were overexposed to the complex financial instruments.

The failure of the multi-trillion dollar CDO market was a key factor in the financial and housing market crash that sent the US economy into recession over 2008 and 2009.

The senate report came after Goldman agreed to pay the Securities and Exchange Commission $US550 million dollars in July 2010 to settle accusations of wrongdoing in the CDO business, while not admitting and wrongdoing.

On Friday a Goldman spokesman, reacting to the Justice Department move, said only that: "We're pleased to have this matter behind us."

But Mr Levin, while not criticising the decision, reiterated his anger over the investment bank's actions and called for tougher bank regulation.

"Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs' actions were deceptive and immoral," he said in a statement.

"Its actions did immense harm to its clients, and helped create the financial crisis that nearly plunged us into a second Great Depression.

"The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs' and other recently discovered misdeeds by financial institutions are ended."

AFP