Last week, I raised a series of worries about the FDIC’s single-point-of-entry resolution protocol, many of which are now addressed in the pending request for views on this critical proposal. FDIC Vice Chairman Tom Hoenig was particularly vocal at the meeting on these concerns, but he today went farther. Saying that resolution under “bankruptcy or otherwise” still won’t cure the risks big banks pose, he calls again for busting banks apart from broker-dealer and other non-traditional activities. So, if SPOE is for naught even if all of his concerns are addressed, is the work about to start on it a waste of all of our time?

Mr. Hoenig substantiates his call for activity limits by his analysis of the market’s demand for banking services and the value shareholders get from the current structure at the largest banks. From both, he concludes that the world would be better if big banks were stripped of their broker-dealers. He says, for example, that corporate CEOs will “privately” make it clear that they would rather deal with more than one big bank.

Why, then, do they often house all of their major operations with one? Is the market now so uncompetitive or banks so prone to wreak vengeance that Fortune 500 firms are afraid to stray? If so, our problem isn’t activity-based, but rather rooted in anti-competitive practices the Department of Justice should quickly address.

Mr. Hoenig’s discomfort with big banks also derives from their complexity. He argues that concentration since the crisis combined with ongoing high-risk activities makes banks “too complex to manage.” This could be true – certainly, the travails of all the living wills lends credence to the complexity concern. But, why don’t regulators have enough tools at their disposal now to deal with undue complexity and resulting risk?

Can’t the living will be used, as the president of the Federal Reserve Bank of Richmond suggests, to force banks to split asunder if they are too risky? Certainly, risk can come not just from broker-dealer activities, but also from old-fashioned financial intermediation, especially if it’s done in too many affiliates in too many places with too few controls. Simple activity limits won’t cure for this, but good living wills could make a difference. Is the FDIC vice chair despairing of living wills? If so, he should say so now before hundreds of millions more are wasted on them. And, if it isn’t living wills that trouble him, is it fears that bank supervisors will still be asleep at the switch despite the hard lessons of the crisis? The supervisory study just released by the OCC shows that at least one agency is making hard decisions about upping its game. Is this doomed?

I think not, just as I believe living wills can be made meaningful if regulators demand that this be done and back their demands with a couple of illustrative divestitures. If I’m wrong – and experience dictates caution – we have a much bigger problem than even Mr. Hoenig anticipates.

If customers can’t be trusted to choose banks in their own best interests or market conditions bar this, if living wills leave big banks unresolvable, and if supervisors can’t control risk, what kind of a banking system have we got? What good then will splitting banks into “traditional” and “non-traditional” bits do? Wherever the activities go, systemic risk will surely follow and customers will remain ill-served unless the more fundamental challenges – SPOE included – are addressed in resolute form.

We could give up now, but then we’d need not only to separate banks into activity buckets, but also strip orders of magnitude out from their asset size, and then hope the radical new business model still works for customers and the economy as a whole. Will it? Financial intermediation is irrevocably large and complex, and so banks must also be. And, if it isn’t banks who fill this void because of all the rules on them, more power to the shadows and, I would guess, still more worries for Mr. Hoenig.