NEW YORK (CNN) -- As Jewish leaders and German banking officials made progress toward setting up a fund to compensate victims of the Nazi Holocaust, Germany's third largest bank, Dresdner Bank, has agreed to contribute to any such reparations settlement, a source close to the talks said Tuesday.

Dresdner was where the elite Nazi guard the Schutzstaffel (SS) held its accounts. One of its board members, Nazi party member Karl Rasche, was convicted of war crimes following World War II.

A spokesman for the bank refused to comment.

Dresdner's decision comes as Germany's largest bank, Deutsche Bank, negotiates with Jewish leaders to settle billion-dollar class action lawsuits filed by Holocaust victims.

Deutsche Bank is seeking approval for a $10.1 billion merger with Bankers Trust, the eighth-largest U.S. bank. New York City Comptroller Alan Hevesi said Tuesday he will not endorse the merger until there is a written agreement on how Deutsche Bank will settle its Holocaust claims.

Deutsche last week disclosed that it had helped build one of the Nazis' most infamous death camps, Auschwitz, where an estimated 1.5 million people, mostly Jews, died. But the bank has denied charges it used Jewish prisoners as slave labor.

Hevesi said he would continue to monitor the negotiations and wanted a report within 30 days on the talks' progress.

Other German companies, including Siemens and Volkswagen, have made their own individual offers of reparation . But the World Jewish Congress has not accepted them, saying it wants a global settlement wrapping up all the Holocaust claims facing companies that did business in Germany during 12 years of Nazi rule.

The chief of staff to German Chancellor Gerhard Schroeder, Bodo Hombach, said Tuesday he believed that a settlement would be reached. Hombach has had two days of talks with State Department officials and representatives of the Israeli government, Jewish organizations and lawyers.

"I have made progress in winning over Jewish organizations and the class-action lawyers," Hombach said. "There has been confrontation, especially with the lawyers, but there is also a positive atmosphere that will lead to agreement."

Schroeder is expected to take up the issue with U.S. President Bill Clinton when he makes a visit to Washington on Thursday.

U.S. State Department Spokesman James Rubin said the United States welcomed Germany's initiative to settle the claims.

"Both governments hope it will still be possible to achieve some measure of justice for those who suffered and closure on these issues."

Rubin also said proposed mergers, such as the Deutsche Bank-Bankers Trust proposal, should not be affected by the progress of the Holocaust claims negotiations.

"Discussions regarding such mergers should be considered on their merits and banking criteria and not burdened by other issues," he said.

The Associated Press and Reuters contributed to this report.

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