The group will place £260bn in covered assets into the scheme, with residential mortgage assets accounting for approximately £74bn of this total.
In return the bank has promised to increase lending by a total of £14bn over the year.
Some £11bn of this fund will go towards business lending and mortgage lending will be boosted by the remaining £3bn.
Royal Bank of Scotland has already pledged £9bn for mortgage lending over the next year, but is placing £325bn into the government’s scheme.
Lloyds Banking Group will pay the Treasury £15.6bn to access the scheme and has agreed to bear the first loss of up to £25bn.
The Treasury may then use this fee to subscribe to an issuance of B shares, which are ordinary shares that carry preferential dividend rights.
Any resulting losses exceeding £25bn will be borne 90% by the Treasury and 10% by Lloyds Banking Group.
HBOS assets make up a significant majority of the assets to be placed in the scheme with 83% of the ‘bad’ assets coming from HBOS’ lending books.
The group has also agreed to replace £4bn of preference shares already held by the Treasury with new ordinary shares which will be offered to existing shareholders in the first instance.
If shareholders who do not take up their entitlement to these ordinary shares the government stake in the bank will go from 43% to 65%.
The government’s stake could even go up as high as 77% if the Treasury opts to convert its fee into the B shares.
Participation in the scheme will boost the group’s core tier 1 capital ratio to a massive 14.5%.
Eric Daniels, group chief executive of Lloyds Banking Group, says: “Participating in the government’s Asset Protection Scheme substantially reduces the risk profile of the group’s balance sheet.
“Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers.
“We believe that this is an appropriate deal for our shareholders.”