Lloyds set for fresh cash injection

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It is understood that talks between senior bank executives and the Treasury have been taking place which could see an agreement announced to the Stock Exchange.

A Treasury spokesman said: "Discussions are ongoing. A deal will be announced at the conclusion of those discussions."

Under the terms of the proposals on the table, the Government would underwrite around £250 billion in "toxic" assets held by Lloyds Banking Group, limiting its potential losses in a bid to get it lending again.

At the same time, the bank would convert the costly preference shares held by the Government - on which it is currently paying 12% interest - into ordinary shares, which attract no interest.

The move would see the Government's stake in the bank rise from 43% to around 60%, giving it a greater say in the way the bank is run as ordinary shares - unlike preference shares - carry voting rights.

The Treasury has already struck a similar deal with Royal Bank of Scotland.

Lloyds has been forced to go to the Government for further support because of the heavy losses run up by HBOS which it took over to prevent its collapse.

Lloyds later insisted that there was "no certainty" that it would participate in the Government's asset protection scheme to underwrite its "toxic" assets.

The group's head of communications, Shane O'Riordain, said: "Our conversations with the Treasury are continuing about our potential participation in the asset protection scheme. This is a complex subject and there is a good deal of detail to be worked through. Our conversations have not yet concluded and there can be no certainty about the outcome."