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.

The expansion of the federal financial safety net has increased the incentives for financial firms to take on more risk than they would have otherwise. Yet current regulatory reform proposals do not address this root cause of financial instability. Sharply curtailing the financial safety net is...