Sir Win Bischoff, the chairman designate of Lloyds Banking Group, is believed to be pushing for the bank to raise up to £15 billion from the stock market to keep down the cost of insuring toxic debt with the Government.

The Treasury is understood to back the bank’s tentative plans to raise cash from the markets and scale back its exposure to the Government’s asset protection scheme, which has been agreed in principle although contracts have yet to be signed.

The bank — which is 43 per cent- owned by the taxpayer — is considering reducing the amount it places into the scheme by as much as half and strengthening its balance sheet by raising between £10 billion and £15 billion through a new share issue.

As Lloyds TSB, it has already raised £4 billion from shareholders this year. HBOS, which it took over this year, raised £4 billion through a rights issue last June and had an £11 billion cash injection from the Government. Lloyds is expected to begin talks with leading shareholders this week.

A spokesman for Lloyds said: “We are working with the Treasury to finalise the detailed terms of our intended participation in the asset protection scheme. We expect to conclude those discussions and agree terms that are in the best interests of our shareholders.”

Eric Daniels, the chief executive of Lloyds, and several key investors in the bank are said to believe that the £15.6 billion fees attached to the scheme are too high.

The taxpayer would own a majority stake in the bank if it entered the asset protection scheme as planned at present, which some shareholders believe would hand too much power to the Government.

A fundraising could also calm the competition and state aid issues that are being raised by the European Commission after Lloyds and Royal Bank of Scotland (RBS) were bailed out by the British taxpayer to the tune of £35 billion.

Neelie Kroes, the European Competition Commissioner, has warned both banks that they will have to make disposals or take other measures to reduce their size to mitigate the amounts that they have received in state aid and to promote competition. Lloyds, which accounts for nearly 30 per cent of high street lending in the UK after taking over HBOS, may have to sell some of its branches.

Analysts at Deutsche Bank said last week: “An improved Lloyds Banking Group share price and a global economy which has turned the corner might present viable alternatives for the company.”

Last week Lloyds announced a £4 billion loss in the first six months of this year, although its share price shot up shortly afterwards amid investors’ relief that the losses were not worse.

The bank reported £13.4 billion of impairment charges for the first six months of the year, although Mr Daniels said that bad debts had already peaked.

Under the existing terms of the asset protection scheme, Lloyds will have to meet the first £25 billion of losses from qualifying loans. Beyond that point the Government will absorb 90 per cent of the cost, with Lloyds picking up the remainder.

Lloyds announced that it would put £260 billion of troubled loans, mainly from HBOS’s loan book, into the scheme when it was first detailed in March.

RBS is understood to be sticking to its original plan to enter the asset protection scheme, but has not ruled out completely a capital raising.

Lloyds’ rights issue is dependent on whether executives believe that the British economy is likely to suffer a “double-dip” recession, in which the economy returns to growth for a short time but then slides back into recession.

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