The British government owns 43 per cent of the bank after it gave Lloyds $27 billion of taxpayers' money in order to save it from financial meltdown.
On Tuesday European competition commissioner Neelie Kroes told the European Parliament: "We need to ensure aid does not allow the bank to consolidate and reinforce its leading presence in markets in which it is already concentrated to the detriment of consumers."
An insider has told Bloomberg that the Commission has told Lloyds in confidential discussions that it must cut its share of British checking accounts from 30 per cent to 25 per cent of the market.
Lloyds currently holds around 22 million checking accounts in the UK, along with about 3,000 bank branches.
It is believed the bank may be forced to sell off mortgage provider Halifax, which it took over earlier this year.
By Tony Aynsley