The Treasury Department is rightfully seeking private investors to recapitalize sick but viable banks. Private investors are, however, unlikely to invest in troubled institutions under current conditions, despite having the interest and capacity to do so.
Early abortive attempts by sovereign wealth funds and private-equity firms to invest in Citigroup, Washington Mutual and National City are sobering and highlight the impediments facing investors. They go beyond the traditional bank holding company ownership restrictions. Resolving the impediments is important to entice private investment, which can break the inefficient and unpopular government bank bailout cycle.