A U.S. government plan to rid banks of bad loans is stalling and may soon be put on hold, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

The Legacy Loans Program, which is being crafted by the Federal Deposit Insurance Corp, is part of the $1 trillion Public Private Investment Program the government announced in March to encourage banks to sell securities and loans weighing on their balance sheets to willing investors.

Prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street, the Journal reported. It also said that some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.

FDIC spokesmen were not immediately available for comment.

(Reporting by Yinka Adegoke; Editing by Gary Hill)