The upper house of the German parliament approved this week a measure that would ultimately allow the government to forcibly take a controlling stake in failing banks. The measure was prepared by Chancellor Angela Merkel’s cabinet and approved last month by the lower house. Although the legislation could apply to any failing bank, it has been widely reported that the legislation was drafted specifically with ailing institution Hypo Real Estate Holding AG (Hypo RE) in mind. According to these reports, the German government has been in talks for months with the bank’s largest minority shareholder, JC Flowers & Co. LLC, a private equity firm based in New York and run by J. Christopher Flowers, to increase the German government’s ownership interest in the bank in an effort to effectively recapitalize the bank. However, the reports indicate that the parties have been unable to reach an agreement on the appropriate price for the shares.

Hypo RE, which has received a string of government assistance from Germany’s Financial Markets Stabilisation Fund (SoFFin) since last fall, just last week announced that it would be receiving additional capital assistance and guarantees from SoFFin in exchange for granting the German government an 8.7% ownership stake in the company. The bank confirmed that the government issued a letter of intent for the government to “gain full control” over Hypo RE.