In October, we released a study concluding that U.S. law and rule is well on the way to dooming “too big to fail” (TBTF), at least here. Importantly and often overlooked, the study didn’t say that TBTF is toast; rather, we assessed the body of U. S. law and rule to demonstrate that it conclusively rejects the “too big to save” policies that characterize the home countries of most systemically-important financial institutions (SIFIs). We didn’t, though, argue that the U.S. orderly-resolution regime is a perfect thing of beauty. Instead, we presented the work list for the industry and its regulators that must be completed before TBTF is over de facto as well as de jure. A key to-do on this list is crafting a practical way to resolve complex SIFIs. On Tuesday, FRB Governor Tarullo made clear that the Fed is hard at work on one vital task: making the “single point of entry” concept a reality. The new resolution technique isn’t easy to craft, but it’s an urgent priority because it indeed could ban bail-outs once and for all.

First, what does the “single point of entry” (SPE) approach to resolution really mean? Simply put, SPE means that the resolution authority – the FDIC in the U.S. – takes over the top-tier — i.e., the publicly-traded parent – of a financial company. It puts this entity into receivership – which means that the top-tier firm’s shareholders and creditors go into the bankruptcy process to get what they can when they can. The subsidiaries of the top-tier entity are not, though, sent to the dust bin. Instead, as Dodd-Frank permits, they are turned into “bridge” companies that continue operating and, thus, avert systemic risk.

What keeps the bridge up without a bail-out for the bank? Here’s where the Tarullo talk comes in. Key to making SPE work is that there be enough long-term debt issued by the top-tier to insulate it from failure or, if needed, fund bridge activities and minimize the need for any FDIC support. The more long-term debt, the stronger the bridge. As part of the liquidation, long-term debtholders could well get equity interests in the reprivatizing bridge. Thus, not only does the SPE keep the lights on, but it also protects orderly financial-market operations because the top-tier company’s prior debt, and perhaps even its equity, recapitalizes the phoenix rising from its ashes.

Is this a bail-out for debtholders? No. Think about the way airlines go bust to see how this would work for SIFIs. Given how frequently all of the major airlines go belly-up, this isn’t a theoretical example. When United or American or any of the others files for bankruptcy, its shareholders and debtholders take a hit but the airplanes stay up in the air. This is because the airlines have the resources in terms of long-term debt with which to fund operations as the Bankruptcy Courts try to figure out how to restart a parent company. Sometimes this doesn’t work and the airline goes out of business altogether. Lots of times, though, an acquirer comes in to restructure the airline, acquire the assets it wants and start the process all over again. Shareholders, prior management and debtholders take a bath, but debtholders often emerge just a bit wet because they get equity in the surviving airline. And, in the meantime, cities are served, passengers move and most employees get a paycheck. Thus, in these cases, innocent bystanders are protected, social purposes are met but market discipline is not undermined.

Because SPE is the resolution technique some large banks are pressing, it might seem the easy way out. Quite the contrary. For the biggest banks and – just as important – for systemic nonbanks – SPE is no free ride. To make it work will require robust living wills, costly new debt instruments, more capital and tough new prudential standards. What it doesn’t require, though, is an implicit guarantee from the FDIC or U.S. taxpayer.

And, one more thing SPE doesn’t demand: new law. The FRB and FDIC have numerous tools in hand with which to require SIFIs to top up their long-term debt obligations to create this vital resolution cushion. How much debt is enough? We need to think this through ASAP. How would this work for non-banks like insurance companies? Even tougher, but another near-term SPE must-do. Parsing through intra-group interstices is also vital as the FDIC has to know at its point of entry which parts of the SIFI live in the bridge or linger in liquidation. Living wills are critical here, but SIFIs must also simplify their operations to limit cross-border and other impediments to recapitalization. So, lots to do, but much is being done to answer these questions. This summer, FDIC Chairman Gruenberg endorsed SPE as its preferred SIFI resolution structure. Now, Gov. Tarullo signaled that the FRB stands with it. Next up, analytical work from the regulators and industry to answer these questions and, then, to craft a viable long-term debt mandate to take the bail-out out of the bridge.