Fed need give more leeway to PE to bail out banks

In the case of National City, this was accomplished in ways that would have been virtually impossible during the savings-and-loan crisis of the late 1980s and early 1990s. Not only were private-equity funds such as Kohlberg Kravis Roberts and Warburg Pincus examining the books, but hedge funds and mutual funds were "brought over the wall" and given access to National City's confidential records. Once "wallcrossed" as they say on Wall Street, these potential buyers were able to move very quickly to shore up National City's gaping capital hole. Would this breadth and speed been available in the last crisis? Absolutely not, say people involved in the NatCity deal. In these unsettling months of crisis, that should be some reason for hope. It shouldn't be blind hope. There's no guarantee that the capital will be there for the next round of infusions. Here the government might make a difference. The first step would be to give private-equity firms more leeway in exerting control over a bank investment. Today they're largely limited to 9.9% stakes. The second would be a more controversial change of the accounting rules for bank acquisitions. When a bank acquires another, it has to take an immediate write-down on the value of bad loans, as opposed to writing them down over time. That rule means that healthy banks acquiring bad banks have to come up with a huge chunk of new capital. That was the primary reason why the likes of KeyCorp and Fifth Third Bancorp steered way clear of National City last week. It was also why banks were begging the Fed for a backstop on National City's bad loans. Luckily, the Fed's mettle wasn't tested. But eventually it will be. And when it is, take comfort in an old European saying that has already been proven: Planned disasters never happen.