The "people's bank" would allow a greater range of financial services to be provided by the Post Office.
A new bank could be created through the Post Office, in order to improve the flow of loans lending to consumers.
The move could signal a new trend towards financial services being provided by the state, the Observer reports. It would follow criticism that a risky "bonus culture" at profit-hunting banks helped to bring about the credit crunch and recession.
There are around 12,000 Post Offices across the UK. The organisation currently offers a range of financial services, including savings accounts backed by the Bank of Ireland. However, under the new plans, the Post Office would function much more like a normal bank.
The other financial firms recently nationalised by the government, after the formerly private firms suffered difficulties in the credit crunch, are Northern Rock and Bradford & Bingley.
Speaking to the newspaper, minister for postal affairs Pat McFadden said that he was "warm about the idea", adding that business secretary Lord Mandelson wants to "see a stronger role for the Post Office".
Plans for the bank have already been put before MPs on the business and enterprise committee, so that their viability can be investigated. The government is also currently pursuing plans to part-privatise the Royal Mail. Under the terms of the new plans, however, the state will sell off a 30-35 percent stake in the organisation, rather than the 49 percent previously proposed.
Reacting to the new proposals, Labour MP John Grogan told the newspaper: "The question that many Labour backbenchers will ask is that, if public-sector managers are good enough to run a 'people's bank' as a successful public enterprise, why can't they do the same with the Royal Mail?"
