Financial policymakers focused on rewriting the rulebook for financial markets have spent months debating issues related to consumer protections, systemic risk regulation and regulatory co-ordination. But none of these is as important as what to do when a large financial institution is failing.

Right now, we are no better off than a year ago, when several major institutions teetered on the edge of total failure, and nearly all of them were granted massive infusions of government and central bank funds. The bailouts were done on an ad hoc basis, as policymakers sought to prevent the catastrophic failure of a few institutions to spare the global economy.