Britain’s Lloyds Banking Group is close to a deal with the government for a £258bn asset insurance scheme, according to BBC sources. The agreement could increase the taxpayer's share in the bank from its current level of 43% to as much as 70%, according to reports.
Lloyds ‘shares closed up 4.2%. However both the government and Lloyds said nothing had been agreed.
Under the plan the government would insure up to £258bn of assets, and would get non-voting shares in return. It could also mean the bank swapping some of the government's existing non-voting preference shares, on which the bank currently pays 12% interest, for ordinary shares.
It is believed the interest on these shares costs Lloyds about £480m a year.
The swapping of preference shares for ordinary shares would be seen as important for Lloyds' cash-flow.
BBC political correspondent Reeta Chakrabarti said an agreement between Lloyds and the government should have been reached a week ago, but both sides confirmed discussions were still ongoing.
A spokesman for Lloyds Banking Group said conversations had not yet concluded and there was still a good deal of detail to be worked through.
A Treasury spokesman said: Discussions are ongoing. A deal will be announced at the conclusion of those discussions.
Liberal Democrat Treasury spokesman Vince Cable has described full nationalisation of Lloyds as inevitable and has called on the government to bring the whole banking sector under public control.
The deal is part of the Treasury's taxpayer-backed Asset Protection Scheme to insure banks' riskiest assets against further losses.
It was put forward by Chancellor Alistair Darling in a bid to restore confidence in the banking sector.
RBS was the first bank to sign up, announcing last month that it would ask the government to insure £325bn worth of so-called toxic assets, which are difficult to value and currently can not be sold.
BBC political correspondent Carole Walker said Vince Cable was not alone in believing full nationalisation would restore confidence in the banks more quickly.
There are a number of people in Westminster who believe we are getting closer and closer to full nationalisation, she said.
[They think] it would be simpler and easier for the government to nationalise the banks and that in the long-term it would save the taxpayer a lot of money.
Some have pointed out that the government has put more money into RBS than its total share value, she added.
Shadow chancellor George Osborne has criticised government efforts to get the banks lending, likening them to ”insuring the car after it has crashed”.