Financial reform has a terrifying loophole—and the banks found it.

There were many factors that led us to the financial crisis of 2008—dangerous derivatives, irresponsible ratings agencies, negligent regulators—but one was more important than the rest. We now know it as the “too big to fail” problem. What brought the economy to the edge of disaster wasn’t only that financial institutions had made rash bets on lousy investments, but that those institutions were so massive that when their bets went bad, they threatened to take the rest of the economy down with them. That’s why Washington was forced to come to the rescue with hundreds of billions of dollars in bailouts for the likes of AIG and Citigroup, and why, when Washington turned to the task of making our financial system safer, President Obama vowed, “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

In late 2009, Jamie Dimon, the CEO of JP Morgan Chase, threw his weight behind what seemed like a sound solution to this problem. Congress, he argued in a Washington Post op-ed, should create a “resolution authority”—a government-run procedure to wind down a failing bank. The idea was to avoid a repeat of the chaos that erupted during September 2008, when government officials were forced to make the best of two awful choices. They could let a failing institution go under—but this could trigger panic throughout the financial system, as when Lehman Brothers collapsed and was hit with myriad conflicting claims from its creditors. Or, they could inject vast sums of taxpayers’ money into companies that were only in dire straits because of their own recklessness. A resolution authority would, in theory, avoid both of these problems. By creating a process to shut down a failed bank, Congress would signal to bankers that they couldn’t count on a bailout—deterring dangerous strategies in the first place. And if a bank did fold, the wind-down process under a resolution authority is run by a government agency under clearly specified rules. It’s faster and comes with more certainty for all involved—which would prevent another Lehman mess. The Federal Deposit Insurance Corporation already effectively uses such a procedure for banks with insured retail deposits, but Dimon was suggesting that a similar process be applied to any financial institution.

The idea sounded sensible, and it had already attracted backers from across the political spectrum. Treasury Secretary Timothy Geithner supported it; his predecessor, Henry Paulson, remarked that if a resolution authority had been available in the fall of 2008, much of the damage caused by Lehman’s collapse could have been averted. When the Dodd-Frank financial-reform bill finally passed in July, it created an expanded resolution authority, just as Geithner, Paulson, and Dimon had recommended.

But there was an escape clause—a rather beautiful one, if you appreciate this sort of elegance. The resolution authority does not cover global financial activities. In fact, it cannot, because no legislature, including the U.S. Congress, can pass a law that determines what will happen in another country’s legal system.

This has major implications for the next time that the financial system melts down. And bankers are well aware that there will be a next time—Dimon himself told the Financial Crisis Inquiry Commission that there is a crisis “every five to seven years,” which is a completely sensible assessment of how the world’s credit system functions. Before the next crisis comes, however, all a bank has to do to escape the resolution authority is to grow so large that it is vital to not just the U.S. economy, but the entire international financial system. If one of these mega-banks goes under, the government will have no choice but to step in and provide full creditor protection. The resolution authority will effectively be meaningless.