The Treasury is keen to achieve a price of £1bn and is exploring the idea of allowing the successful bidder to liberate about half of it after the deal.
However the FSA opposes the idea as it wants Northern Rock to maintain a large financial cushion.
Virgin Money and American private equity firm JC Flowers are currently the only two bidders.
The deadline for bids is set for the end of October and the government wants a sale by the end of the year.
The price tag for the lender has already been cut from £1.4bn and it is believed the government may even accept less.
Sources say the government would only achieve a deal if the buyer was able to recoup £500m from the business.
Other options touted are that the Treasury removes the £500m of assets before the deal is signed to demonstrate Northern Rock can still generate a return for taxpayers. However if that were to happen, the price would drastically be reduced.
Meanwhile NBNK submitted a bid worth £1.5bn for the 632 branches put up for sale by Lloyds reported the Times.
NBNK is also interested in Northern Rock but cannot bid until 5 November because Gary Hoffman, former chief executive of NBNK, is banned from the process until that point.
