Two months after they brought the issue to the brink, the banks agreed to pay the money to victims of the Nazis for assets which the banks refused or failed to return when the Second World War ended.
The announcement of the deal came from the New York Senator, Alfonse D'Amato, who had led the often bitter negotiations on behalf of Jewish groups.
After two days of talks at the Brooklyn Federal Court where the claims were lodged, Mr D'Amato revealed the first instalment of $250m on the deal would be paid out in the next 90 days.
The banks' offer came two weeks before states including New York, New Jersey, Florida and California were about to implement sanctions against the banks over the affair.
Mr D'Amato said: "We have reached an historic agreement with the Swiss banks which will bring moral and material justice to those who have suffered for so long."
He was flanked by representatives of Jewish groups, the banks and lawyers for claimants as the announcement was made. Previous estimates of claims were as high as $20bn.
The claims were lodged largely on behalf of United States Jewish groups, but also represented Jewish heirs and survivors around the world.
In the face of the potentially devastating lawsuit, Credit Suisse Group, Swiss Bank Corp and the Union Bank of Switzerland began talks with the World Jewish Congress in the spring. But talks broke down in June amid recriminations that both sides had betrayed the confidential negotiations. The banks said $600m was their final offer to the tens of thousands of Jews fighting for compensation.
Jewish groups and lawyers reacted with anger to that announcement, which was interpreted as an act of brinkmanship by the banks.
Behind it lay a complicated political situation in Switzerland where the "Nazi gold affair" has become a subject for fierce debate. The banks were left facing boycotts abroad for failing to make retribution while contending with arguments at home that any settlement would be a climb- down.Reuse content