A single regulator tasked with preventing threats to systemic stability would need to have considerable power and discretion. But creating such a powerful entity could reinforce the moral hazard problem resulting from the idea that some firms are too big to fail.

Did market failures cause the 2007-08 financial crisis? While economists have made substantial progress exploring this question, the answer remains unclear. The answer is important because financial regulation that does not address a specific market failure risks causing new inefficiencies and...