Cabinet ministers are considering fully nationalising the Royal Bank of Scotland, which was bailed out in in 2008, according to reports on Thursday.
The FT reports government ministers are frustrated at the failure of banks to lend to businesses.
The news comes the day after George Osborne launched the £80bn funding for lending scheme, which will make money available to banks on the condition they pass it on to businesses and households in the form of cheaper loans and mortgages.
Government ministers have discussed full bailing out RBS, according to reports
Reports indicate Osborne does not support the move, which some believe could push banks to start lending to businesses.
A Treasury source, speaking to the Daily Telegraph, played down the reports RBS, which is 82% state owned, would be nationalised.
Last week RBS' chief executive, Stephen Hester, said the state-backed lender was in the process of being investigated by the Financial Services Authority over its role in attempting to manipulate the benchmark borrowing rate Libor.
In an interview with The Guardian, he said "RBS is one of the banks tied-up in Libor.
"We'll have our day in that particular spotlight as well."