Right after 9/11, no one had a problem getting poked and prodded at airport security lines. It felt necessary. Now it drives everyone insane. After the Great Depression, savings rates were lofty and debt avoidance was cool. Six decades later … oh, no point in rubbing it in.  

The ironclad rule of change is that it gets harder to rationalize as you move away from the "wake-up" event. 

Clock's ticking …
Today, one year after Wall Street soiled itself, nothing has changed. And make no mistake: The farther we get from last fall, the harder it'll be to rationalize meaningful financial reform.

Take the problem of "too big to fail." The best way to end it is to man up and break banks apart. But since banks suddenly appear young and spry again, finding the backbone to do so seems like a pipe dream. There's no more sense of urgency. There's no more panic. It's getting harder and harder to rationalize groundbreaking change. Why break up Goldman Sachs (NYSE:GS) when it's doing better than ever? That's the unfortunate mindset today.

Plan B
If forcing breakups isn't realistic, what is? One solution is to simply give banks an incentive to downsize. Philip Purcell proposed a practical way to do so earlier this week in the Financial Times.

Purcell, if you're curious, is the former chairman and CEO of Morgan Stanley (NYSE:MS), and an unsung hero in my book. In 2005, he was ousted primarily because he wasn't willing to engage in reckless risk-taking. He understood how dangerous it was.

But swinging for the fences was fun back then, so Purcell was replaced with current CEO John Mack, who swung wildly. Risk-taking ratcheted up. Three years later, the firm was nearly bankrupt. A coincidence, I'm sure.  

The answer
Anyway, Purcell's op-ed in the Financial Times recommends a doable approach to overcoming "too big to fail." In his own words:

Smaller banks are now required to have 8 per cent tangible equity per dollar of assets (the leverage ratio). This stronger capital structure will reduce bank failures.

Too-big-to-fail institutions, however, should have a higher ratio of 10 to 12 per cent … The public bears the cost of too big to fail. Since capital is the public's main protection, it should be high.

I love it. Is there any sane reason why Bank of America (NYSE:BAC), Citigroup (NYSE:C), or JPMorgan Chase (NYSE:JPM) should be held to the same capital standards as, say, Bank of the Ozarks (NASDAQ:OZRK) or Smithtown Bancorp (NASDAQ:SMTB)? Absolutely not. The former three are several hundred times larger than the latter two. The damage the bigger banks can inflict on the economy isn't remotely comparable.

Purcell's recommending a tiered capital system, where large banks are forced to hold proportionately more capital than small banks. If you want to be huge, hey, that's fine -- but you to need to carry around even huger lifeboats. And if you're supertalented and can create real, unleveraged returns on trillions of dollars of assets, you're still free to do so.

But almost no one can. As my colleague Ilan Moscovitz and I recently showed, the main reason banks want to be huge is that size increases the dollar amount of profits, regardless of efficiency. More profits in turn jack up compensation for those in charge.

With a tiered capital system, that wouldn't happen. Profits would diminish, if not decrease, once the banks breached a certain size. Huge banks would have a great reason to either stay below the threshold, or break themselves into smaller pieces. Presto change-o -- you dismantle "too big to fail" without really forcing a single breakup.

Better than nothing
Granted, this wouldn't solve the entire problem. Amazingly, Lehman Brothers had an 11.6% Tier 1 capital ratio the day before it went bankrupt. As it turns out, its capital was largely short-term, repo-related funding that could (and did) vanish in an instant. Sometimes the level of capital isn't as important as the kind of capital.

But Purcell's plan would still be a step in the right direction, and one that could be implemented quickly and easily. You just write the new rules and give banks a few months to accept reality on their own terms. That's a heckuva lot cleaner than forcing breakups, and it might achieve a similar goal.

What do you think? Sound off in the comment section below.  

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.