The unprecedented move - a deal worth up to $80 billion of public money - is being planned in order to inject liquidity into the markets and head off Britain's widely-predicted economic slowdown.
Speaking to the Guardian, an unnamed government source commented: "We are working very closely with the banks and very collaboratively at options for providing more liquidity to marketsâ¦things are not quite finished but we are not far off."
The plan could work through banks being allowed to trade their mortgages with bonds through the Bank of England.
In turn, these 'safe' products would then be traded on the money markets, increasing banks' revenue streams and encouraging them to pass on rate cuts to consumers.
London's FTSE 100 enjoyed a strong day's trading on the news yesterday, rising by 2.4 per cent.
Banking stocks rose particularly sharply, with Barclays up 30p to 479p and HBOS - Britain's biggest lender - increasing 25p to 539.50p.