Big banks’ creditors — like bond holders — don’t impose discipline, either. They know they will be protected by a taxpayer rescue should a large institution teeter.

Fairness is at the heart of Mr. Fisher’s argument. Large institutions, he said, are “financial firms whose owners, managers and customers believe themselves to be exempt from the processes of bankruptcy and creative destruction.” In other words, small institutions must submit to the rigors of the free market. Those too big to fail do not.

There are roughly 5,600 commercial banking institutions in the country, Mr. Fisher noted. Some 5,500 of them are community banks. While these organizations account for 98.6 percent of all banks, they hold only 12 percent of total industry assets. They are routinely allowed to fail if they get into trouble. Few of them did during the crisis.

Contrast these figures with those of the nation’s 12 largest banks, whose assets range from $250 billion to $2.3 trillion. They account for 0.2 percent of all banks but hold 69 percent of industry assets. These are the banks that enjoy all the perquisites of the federal safety net: significantly lower borrowing costs and a taxpayer backstop, for example.

Understanding that it will be a tough battle to break up the megabanks, Mr. Fisher suggests that in the meantime, only commercial banking operations receive protection from the federal safety net in the form of federal deposit insurance. An institution’s other activities — securities trading, insurance operations and real estate, for example — should fall outside any backstop. Furthermore, he recommends that these banks require customers and trading partners to sign an agreement stating that they understand the business they are conducting is not covered by any federal protection or guarantees. That would begin to reduce the perception that all of these institutions’ counterparties would be protected in a disaster.

“Financial stability rests on a level playing field that rewards sound judgment and integrity and penalizes excessive risk and complexity financed by taxpayer dollars,” Mr. Fisher said in his speech. “Government must retain its role as the financial system’s watchdog, but it should render no institution immune to market discipline.”