Lloyds Banking (LSE:LLOY) and NatWest Group (LSE:NWG) were approached this week about potentially buying some of Metro Bank's (LSE:MTRO) mortgage book, as the smaller lender looks to fortify its balance sheet.
Advisers to the challenger bank contacted its larger rivals about buying around 30% of the mortgage book, Sky News reported overnight.
Yesterday, the lender confirmed that chairman Robert Sharpe had met regulators after reports emerged that Metro was looking to raise up to £600 million split between new shares and debt.
The shares have fallen over 60% in the past month, but bounced 6% to 39.8p this morning.
The bank's advisers have been offering about £2.3 billion of Metro's £7.5 billion mortgage book to larger rivals as another way of raising funds and reducing regulatory capital requirements, the FT reported.
Analyst Gary Greenwood at Shore Capital said the bank was "in a very tricky situation" as without raising money it will not be able to grow its loan-book "and so will struggle to build profitability".
But as it continues to operate so close to regulatory minimum requirements this is "likely to unsettle depositors" and could potentially lead to "material" withdrawals, he said in a note.
"The group needs to move fast to shore up its balance sheet. If it cannot convince the regulator it can deliver, it may find matters are taken out of its own hands."