Business Secretary Lord Mandelson is backing plans to create a "people's bank" using the 12,000-strong Post Office network.
The branches would provide a full range of financial services, and could help the Government free up lending in the economy.
The idea is being worked on as part of a package to head off a Labour rebellion over part-privatisation of Royal Mail, the parent company of Post Office Ltd.
Minister for postal affairs, Pat McFadden, told the Observer he was keen to expand their operations and allow them to function more like banks.
"I am warm about the idea," he said. "The secretary of state (Lord Mandelson) has said he wants to see a stronger role for the Post Office. This is something we are working on. We have asked the business and enterprise select committee to look into this."
The Post Office already offers some banking services and bill payments. In 2004 it linked up with the Bank of Ireland in a joint venture that allowed it to offer credit cards, mortgages and personal loans.
It was re-awarded a contract last year to run the card account that distributes benefits and pensions to more than four million people.
However, under proposals submitted to the select committee last week by a coalition of business groups, MPs and unions, the new state-owned "people's bank" would also offer debit-card facilities, current accounts, savings plans, loans, business services and financial advice.
More than 100 Labour MPs have signed a parliamentary motion calling on the Government to drop plans to sell off part of Royal Mail. However, Lord Mandelson has insisted the move is needed to inject cash into the organisation.