Musing on the four-year Dodd-Frank anniversary, Sen. Merkley on Tuesday asked FRB Chair Yellen if slow progress on all its rules has led to a “crisis of confidence” in the law’s ability to cure TBTF. Ms. Yellen countered that the rules have gone slowly because crafting effective requirements should proceed only at due, deliberate speed. Both she and Sen. Merkley are right: Dodd-Frank demands much from the regulators, but failure to finalize critical planks in the new framework nevertheless undermines the credibility of market discipline. Financial markets are all too fragile but the U.S. still has no resolution protocol and global regulators are at even greater odds than ever. I cannot see the U.S. sinking slowly back into the TBTF morass, but I can see another crisis coming upon us long before the regulators have crossed all their i’s, dotted all their t’s, and compromised on enough of their disputes to cobble final resolution protocols together. If we wait this long and markets get nervous – think repos and be really worried — the wrath of the populists will be fierce and the U.S. banking system and its regulators will face reform that makes Dodd-Frank look like molly-coddling.

Where do the most critical rules to end TBTF – the resolution requirements – stand? The FDIC’s single-point of entry (SPOE) plan is still the general concept release on which I commented last year. U.S. G-SIBs were told to figure out cross-border scenarios for themselves in their third round of living wills and, though the FDIC and FRB have yet even to comment on those sent in last year, this injunction makes the big banks – if not their overseers – better prepared than before. But, cross-border agreements needed for each G-SIB, the cross-default clauses required for market calm, and the global loss-absorbency capacity (G-LAC) rules designed to put creditors ahead of taxpayers, and a multiple-point-of-entry resolution plan are all largely incomplete.

One might take some comfort in these efforts, as well as in growing interest in the U.S. Congress to come up with a more credible bankruptcy alternative to OLA so that the taxpayer is rarely, if ever, called upon. But that comfort is short-lived when one looks into Basel’s sanctum. It and the Financial Stability Board are trying to get G-LAC in draft form before the G-20 demands a TBTF update. From all I hear, these discussions aren’t going at all well, and therein lies perhaps the biggest challenge to U.S. efforts to comply with Dodd-Frank’s injunctions.

As I’ve said before, Dodd-Frank – backed by even stronger policy and political demands in the U.S. – sees even the very biggest banks as shareholder-owned companies managed for profit, not macroeconomic or geopolitical purpose. Debate here rages not over whether big banks should fail, but rather whether they can do so without bail-out as currently constructed and regulated. In the wake of its near-death experience, the U.K. largely agrees with the U.S.

But that’s where global agreement stops. The English-Speaking Union at the FSB faces obdurate opposition from pretty much everyone else who wants big banks, as before, to fulfill national-champion objectives. To be sure, the EU has made major strides with its Recovery and Resolution Directive, but that still leaves largely unanswered just how much private money stands ahead of national governments which, like Portugal’s earlier this week, leap to the defense of troubled behemoths within their own borders.

G-LAC is supposed to settle how much private capital in the form of contingent debt stands ahead of governments so that private investors exert discipline on wanton bankers and, should they fail to do so, forces creditors, investors, and bankers to pay a price. The U.S. and the U.K. want that price to be steep; the EU, Japan, and other nations not so much.

This negotiation will play out, and perhaps end up with a seemingly tough agreement that is actually implemented only by the U.S. and U.K. Think risk weightings and be afraid. Or, G-LAC could be the last straw on an already rickety global framework. We’ll see.

But, the U.S. has to have G-LAC. If we don’t, then SPOE won’t work. If SPOE doesn’t work – and many other challenges await us even if big BHCs issue a lot of contingent debt — then TBTF remains. If TBTF remains, the U.S. has to decide: Is the cost of structural reform of the biggest financial firms so grave as to permit a more national-champion style financial system or do we really want the smaller, leaner, truly private banking system on which libertarians and liberals agree? Or, we could just keep talking and wait for the next crisis to settle the issue.