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The government is considering major changes to its bank bail-out scheme before Christmas to try to force banks to lend more money to small businesses and homebuyers.
Amid concerns that the government's £500bn package of measures is not working, the Treasury is considering a scheme to guarantee a wide range of loans in order to compel banks to channel more cash into businesses and mortgages.
The Conservatives have been advocating a national loans guarantee scheme that the Treasury may be trying to adapt to suit its objective of maintaining funds to small businesses during the economic crisis.
It is possible that strict targets for lending could be set for banks to achieve next year when the recession is expected to drive up unemployment, force businesses to the brink and confront more homeowners with repossession.
Alistair Darling reiterated the point to reporters at Westminster yesterday. "One of the biggest challenges we face in the next few weeks is to ensure that having recapitalised the banks, the banks can also support the wider economy," the chancellor said.
"It is critically important that we get banks lending again. We do need to make sure that we can build up the strength of the banking system, but it is also important that we do everything we can to ensure that banks pass on the benefits of lower interest rates. We are looking at what further credit can be made available."
The Bank of England has slashed its interest rate to 2%, the lowest level since 1951, in an attempt to kickstart the economy. Though the government has called on the banks to pass on the cuts in full, Darling acknowledged that they face a dilemma.
"I'd like to see interest rate cuts passed on as much as possible, but we've also got savers to look after," he said. "We are all conscious that for everyone that borrows money from banks there are also people that put money into banks who want to get the best return they can. It is a question of balancing those."
Darling and the business secretary Lord Mandelson are due this week to meet the high-level lending panel set up to examine lending to business and householders amid conflicting evidence about whether lending to small businesses is drying up.
Darling's comments came as the lenders attacked the government for having a "conflicting and incoherent" policy by demanding banks hold more capital to cushion further losses, pay a premium to access the Bank of England's funding schemes, pass on interest rate cuts and at the same time support savers.
Michael Coogan, director general of the Council of Mortgage Lenders, delivered an usually blunt message along with data showing mortgage lending had halved compared with a year ago.
"The government needs to decide on its key priority," he said. "The tug-of-war with lenders being pulled in every direction at once needs to end. We believe the government urgently needs to review the cumulative effect of the approach it has taken in the recapitalisation process on large lenders' willingness and capacity to lend."
Lenders hope the government could begin to tackle the problems by adopting the recommendations made by the former HBOS chief executive Sir James Crosby to guarantee mortgage-backed securities. Other loans could also be guaranteed in this way. The Treasury may also look at the fees it charges for access to emergency funds such as the special liquidity scheme and the credit guarantee scheme, where it is thought to be planning to make adjustments.
Lloyds TSB, HBOS and Royal Bank of Scotland - the banks that have accepted £37bn of investment - have already been told they must maintain lending at 2007 levels for two years. But it is thought that targets could be set for the industry amid concern that the bail-out banks are trying to wriggle out of the requirement.
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