Lloyds and the Treasury were locked in tense negotiations tonight as the banking group tried to prevent the government from taking a majority stake.

The Lloyds board met throughout the day to discuss the terms offered by the Treasury to convert £4bn of preference shares into ordinary shares and insure up to £260bn of its most troublesome assets – a move that could increase the taxpayer's stake to between 60% and 70%.

In a day of frenzied speculation about the delay to agreeing terms, there were rumours that the entire board was prepared to resign because of the creeping control of the taxpayer.

Most of the pressure was on Sir Victor Blank, the chairman, who brokered the rescue takeover of HBOS last year with the approval of Gordon Brown. Eric Daniels, the chief executive, was also feeling the heat after admitting that Lloyds had conducted between three and five times less due diligence when deciding the terms of the HBOS takeover last year.

Daniels is known to have been resisting running the bank with a taxpayer stake above 50%. The government's shareholding is currently 43% as a result of £17bn of public funds being injected into the enlarged bank as a result of last October's bailout. Since the bailout at the height of the banking crisis, the extent of the problems inside HBOS have been worse than expected.

Last week Lloyds admitted HBOS had made £10.8bn of losses because of ­problems with corporate loans.

Daniels has been vocal in his dislike about the terms of the preference shares attached to the bailout, which carry an interest rate of 12% and an annual bill for the bank of £480m each year. Converting the preference shares into ordinary shares would cut the interest rate but allow the taxpayer's influence to rise. It is thought that Lloyds was arguing the preference shares be converted into new B shares, that carry no voting rights and therefore keep the taxpayer's influence below 50%.

Despite expectations an agreement would be reached by late ,today the news services through which stockmarket-listed companies must issue information closed for the weekend without any agreement being announced. Lloyds shares had risen 4% to 42p on earlier hopes that the board would agree terms.

It is understood that Lloyds is ­concerned about the impact of wider taxpayer control on its existing shareholders – particularly the 3 million private investors who own shares in the combined bank. This is the largest number of private investors on any company's shareholder register and the result of the flotation of Halifax a decade ago when its members were offered free shares in the former building society.

Under the terms offered by the Treasury, the taxpayer stake could raise to 60% if the £4bn of preference shares are converted into ordinary shares. The economic interest of the taxpayer – but not necessarily influence – could rise to 70% under the terms offered for insurance of up to £260bn of toxic assets, largely stacked up by HBOS.

Lord Mandelson, business secretary, said the talks were tricky. "Obviously when you're making a change like this, introducing new measures or ­instruments to enable the banks to recover, it involves a negotiation about the terms, the pricing and all sorts of ­conditions that are attached and that involves a fairly difficult, tough negotiation between the government and the banks," he told Sky News.

As well as having to reluctantly accept more taxpayer influence over the bank, Lloyds will have to agree to targets to step up lending this year and next as well as terms to the way it pays its staff throughout the organisation, from branch-based staff to bankers offering loans to major companies.

Royal Bank of Scotland was the guinea pig for the so-called asset protection scheme and has admitted the taxpayer could end up with an economic interest of 95% but voting rights of no more than 75% for the price of participating in the insurance arrangement.

The terms being offered to Lloyds are thought to be more stringent because of the quality of the assets being insured.