Her solution isn’t perfect.  There’s still the possibility (probability), as Rolfe Winkler points out that, with implicit government guarantees, the banks will still take on too much risk.  But limiting the size of banks is a step in the right direction. And making both shareholder AND bondholders take losses is too!  The FED, on the other hand, will never limit the banks in any meaningful way, since it is legally owned by them.

Below is Rolfe’s marked-up copy of the Chairbair’s testimony:Sheila Bair Systemic Rist Testimony 072309