Just as too-big-to-fail is said with two distinctive meanings or tongue-in-cheek - it was used as a positive way to describe banks that needed bailouts but also has come to describe banks that should not exist or get bailouts, the too-big-to-fail bill is also coming to have the same double identity. It's not a bill that will substantially keep too-big-to-fail from happening again, but in fact will simply create a more formal process for doling out bailouts to the too-big-to-fail institutions when they fail. Again, the TBTF bill isn't a solution to completely resolving TBTF, but is creating a more complete process to deem banks too-big-to-fail. The resolution authority is not mandatory.

Here is a Forbes article on the most important questions to keep asking of the new bill unveiled:

Fuzzy Areas In Financial Reform Bill
Joshua Zumbrun, 10.29.09, 06:11 PM EDT
Does the proposal allow bailouts? Can we say who would be Too Big To Fail? And has anyone actually read it yet?

WASHINGTON -- As new financial reform proposals begin to worm their way through Congress, a number of sticking points have emerged. New laws to monitor firms that could pose risks to the whole financial system, create a council of regulators and shut down flailing financial institutions--it all sounds nice on the surface. But you know what they say about the details.

Here's a look at some of the early criticisms of the financial reform bill that emerged in testimony before the House Financial Services Committee on Thursday. (See "Familiar Flavor To Financial Reform Bill.")

Does the bill allow bailouts or not?

Treasury Secretary Timothy Geithner insists that the legislation does not give the government the authority to bail out companies. Under the legislation, any high-flying financial institution that gets in trouble would be forced into a new resolution process under which the FDIC would shutter it, as the FDIC currently does with normal banks.

But the bill as written would seem to also allow the government to provide liquidity to solvent institutions. Since these are nebulous concepts, it seems the government could declare that a bank is illiquid but not failing, and lend it money in a fashion quite similar to a bailout.

Peter Wallison of the American Enterprise Institute says, "The draft proposes nothing more or less than a permanent TARP." Phillip Swagel, a professor at Georgetown and a former assistant Treasury secretary under Henry Paulson, said he does not think it is Geithner's intention to do this, but the legislation would allow it.

Is the proposed resolution process the same as failing?

The bankruptcy of Lehman Brothers ( LEHMQ - news - people ) and the catastrophic fallout is cited as Exhibit A for why bankruptcy court is inadequate for dealing with major financial institution failures. The administration argues that the resolution process would create a system where nobody is "Too Big To Fail." No matter how big you are, you will get taken to resolution if you screw up.

CEOs would be likely to lose their jobs, a bit of added incentive for them to not wreck their companies, but what about the firm's bondholders? If bondholders believe that the resolution process is preferable to bankruptcy, then they could enable the same sort of mistakes seen in the past year.

In the event of a failure, the rest of the financial industry would be assessed a fee to cover the costs. The idea is to protect taxpayers. But couldn't this also end up being a punitive assessment, even against financial institutions that had absolutely nothing to do with a particular failure?

Who is "Too Big To Fail"? What firms are even financial institutions?

This question matters for two reasons: First, who gets special oversight and will end up in special resolution; and second, who will have to pay for the resolutions after. The legislation gives the government discretion in determining who is "Too Big To Fail," and even which institutions can be considered financial institutions.

This is a trickier question than it ought to be. After all, the TARP was written to rescue financial institutions, but after intense lobbying from the automotive industry, the Treasury decided the law could be interpreted to bail out General Motors and Chrysler as well. Sheila Bair, the chairman of the FDIC, agreed in questioning that the law probably needed to be clarified, to prevent the scope from getting out of hand.

Can we say who is "Too Big To Fail"?

One provision requires that the government will not keep a public list of firms who have been designated as systemically risky. But under questioning, Geithner said it would not be secret, because the firms would be held to different standards. What is the point of this charade where the designation of "systemically risky" is public, but the government does not keep a public list of the firms? Geithner says it strikes the proper balance between transparency, and not overhyping expectations of Too Big To Fail.

Should the Fed have more power?

In the original version of the legislation, the Federal Reserve would have had sole responsibility for monitoring systemic risks and systemically risky institutions. Monitoring risks is now the job of the proposed council, but the Fed still gains the authority to regulate new institutions. After doing such a crummy job of regulation running up to the financial crisis, a lot of Congress still balks at the idea of giving the Fed more authority.

Can we have time to read the bill?

An irritated Spencer Bachus, R-Ala., the ranking Republican on the House Financial Services Committee, complained that the draft legislation (253 pages of it!) was released Tuesday evening. The testimony of witnesses was due 48 hours before the hearing--the experts and regulators who came to testify about the bill had to turn in their testimony before having a chance to read the bill. A poor process for possibly "the most important legislation this committee will ever consider in our lifetimes," says Rep. Scott Garrett, R-N.J.

When asked if they'd had enough time to actually read and consider the legislation they had been called to discuss, all 10 witnesses on the final panel said "no." Several times witnesses responded that they could not answer questions from Congress because they were not sure what all the legislation said.

The legislation still faces, at minimum, markups in House and Senate committees, votes in the committees, votes on the House and Senate floor, then a conference to resolve the differences between House and Senate versions, and another vote. There's plenty of ironing yet to occur. Careful wording may fix some of the problems, but some sticking points are far from resolved.

Sheila Bair's issue with the bill is this: 'Federal Deposit Insurance Corp. Chairman Sheila Bair, breaking with the Obama administration, said U.S. financial companies should prepay into a fund the government would use to unwind large failed firms.

Congress should set up a Financial Company Resolution Fund and force institutions with more than $10 billion of assets to pay before a firm collapses, Bair said in testimony prepared for a House Financial Services Committee hearing today. Investors in failed companies also should take losses, she said.

“A prefunded FCRF has significant advantages over an ex- post funded system,” Bair said. “It allows all large firms to pay risk-based assessments into the FCRF, not just the survivors after any resolution, and it avoids the pro-cyclical nature of requiring repayment after a systemic crisis.”'

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