“Almost two years after the Dodd-Frank act became law, many rules have not yet been written so much of the detailed work still lies ahead,” Lockhart said, referring to the law intended to reform banks and financial firms in response to the crisis. “The details of the rules will influence the structure of the firms” and the financial sector overall.

“The power of the five largest banks is too concentrated,” he said. "The banks have become larger since the 2008 financial crisis and are now ‘too bigger to fail.’”

One of the more difficult tasks in implementing the statutory prohibitions is distinguishing between prohibited proprietary trading activities and permissible market-making activities. This distinction is important because of the key role that market makers play in facilitating liquid markets in securities, derivatives, and other assets.

Strong capital requirements must be at the center of the post-crisis period regulatory regime.

“I believe that too-big-to-fail banks are too-dangerous- to-permit,” Fisher said in the text of remarks given in New York today. “Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy.”

For all the regulatory changes that are in place, in process, or under consideration, I believe that capital regulation remains the single most important element of prudential financial regulation.

Strong capital and liquidity standards are central to an effective financial regulatory system. Well-crafted capital standards provide a buffer against loss from any activities of a bank, while good liquidity standards help provide assurance that a firm will have breathing space during a period of financial stress, whether idiosyncratic or systemic. But we cannot rely solely on these standards, important as they are, to provide a stable financial system. A necessary supplement is a strong resolution mechanism for systemically important firms, both to counter too-big-to-fail perceptions and to contain the harm to the financial system that would be caused by the failure of one of these firms.

I would argue that progress on the liquidity front has not progressed as far as desired.First, many banks remain dependent on short-term funding to finance longer-term assets from counterparties that tend to flee at the first signs of distress. In particular, money market mutual funds remain vulnerable to runs. Such runs can occur even when the underlying risks remain negligible, making money market mutual funds a source of instability. Just a question from an investor about the fund manager’s exposures can cause the fund manager to withdraw funding from a counterparty. This may be market discipline, but it does not operate in a way that makes the financial system more stable.

 In response to the crisis, we have seen a comprehensive re-thinking and reform of financial regulation, both in the United States and around the world. Among the core objectives of both the Dodd-Frank Act and the global regulatory reform effort are: enhancing regulators' ability to monitor and address threats to financial stability, strengthening both the prudential oversight and resolvability of systemically important financial institutions (SIFIs), and improving the capacity of financial markets and infrastructures to absorb shocks. I will briefly discuss each of these objectives.

Hoenig spoke after international regulators forged an agreement over the weekend that requires the world’s largest banks to hold extra capital. The requirement is aimed at strengthening the biggest banks’ financial cushions to prevent another financial crisis.

Responding to an audience question, Hoenig said the surcharge may not reduce risks to the broader financial system, compared with his recommendations.

“I don’t have any faith in it at all,” he said. Discussing the Dodd-Frank law’s authority for the government to wind down a failing big firm without a bailout, Hoenig said, “I just can’t imagine it working.”

I hope that I have convinced you of three main points. First, the financial system meltdown of 2007-09 was caused by the unexpectedly large decline in U.S. residential land prices. Second, higher amounts of household and financial institution leverage leave the financial system more vulnerable to these kinds of shocks. Finally, the U.S. tax system encourages leverage by providing incentives for households to take on more mortgage debt and financial institutions to finance through debt.

I would say that the experience of the past few years has demonstrated how challenging it is to safeguard the financial system against systemic risk and how costly it can be if we fail to do so. Given this fresh experience, and my earlier remarks, I would assess the costs of providing tax incentives for leverage to be higher today than such an assessment in, say, 2006.

While there is much to criticize about Dodd–Frank, I cotton to those blunt statements on ending too big to fail. For, if after the myriad rules and regulations are written and implemented we have not eradicated too big to fail from our financial infrastructure, reform will have failed yet again.

Under the Dodd-Frank legislation a group of regulators, the Financial Stability Oversight Council, is now tasked with providing financial stability oversight. However, as I noted at the outset, financial stability was never defined in the legislation. This leaves some ambiguity on how broadly or narrowly financial stability should be defined.

The regulatory structure for [systematically important financial institutions] should discourage systemically consequential growth or mergers unless the benefits to society are clearly significant. There is little evidence that the size, complexity, and reach of some of today's SIFIs are necessary in order to realize achievable economies of scale and scope. Some firms may nonetheless believe there are such economies. For them, perhaps, the highest level of an additional SIFI capital charge may be worth absorbing.

Banking organizations that have access to the safety net should be restricted to the core activities of making loans and taking deposits and to other activities that do not significantly impede the market, bank management and bank supervisors in assessing, monitoring and controlling bank risk-taking. However, these actions alone would provide limited benefits if the newly restricted activities migrate to shadow banks without that sector also being reformed. Thus, we also will need to affect behavior within the shadow banking system through reforms of money market funds and the repo market.