German Chancellor Angela Merkel says the state will have to take control of Hypo Real Estate.
The mortgage lender obtained federal guarantees amounting to 52 billion euros in October to cover losses due to the banking crisis.
The cabinet is to debate plans this Wednesday to partly nationalise the company. Current rules allow the state to take over only one third of a troubled bank.
Mrs Merkel told ZDF television the government needed a voting majority at HRE to shape its future.
Rejecting criticism that she was interfering with private enterprise, Mrs Merkel said the move to take control of HRE was aimed at getting the German economy back on track.
Also on Sunday, Aareal Bank, another mortgage lender, disclosed
it has obtained a capital injection of 525 million euros from the state.
Aareal said the government would be a sleeping partner only and insisted the move was purely precautionary, saying it ended 2008 in the black.
Other German banks to receive government backing include Commerzbank, which was one-quarter nationalised.