The strongest argument for isolating banks’ varied services is more a matter of culture. Investment banking is a volatile, exciting, high-risk, high-reward business, and should be cordoned off from the arm that deals with consumers. The ideal structure for investment banking is a partnership in which the traders’ compensation is a function of their performance, so that they share in their firm’s gains and losses.

Here’s how it could work: A too-big-to-fail, too-complex-to-manage bank such as JPMorgan Chase should be split into three parts. The investment bank could be spun off entirely. JPMorgan’s creative investment bankers would relish the chance to turn the franchise into a partnership, with the freedom to pay themselves what they please. The remaining bank would be split into a wholesale bank, for large corporate clients, and a retail bank, the only taker of insured deposits.

Regulating these three types of entities would be straightforward. The investment bank would be regulated as lightly as a hedge fund, but would not have access to financing that uses taxpayer money. The wholesale bank would provide only simple banking products, including foreign exchange and interest-rate hedges. The retail bank would be limited to consumer banking and small-business and mortgage lending, with no scope for high leverage or the big-scale securitization that sank otherwise simple banks, such as Washington Mutual, in the crisis. These two last classes of banks would be boring but safe. A housing bubble, if it came, would not be centered on the insured banking system, and so would be potentially less damaging to the taxpayer.

Just as important as a structural change is the need to eliminate the culture of bonuses at consumer-facing banks. Bonus-pool culture migrated to big commercial banks when they set up or bought investment banks in the 1980s. But, with no unlimited partners to share both gains and losses, the incentives were skewed: The bonus pool would skim off 40 to 50 percent of revenues up-front while any losses hit only shareholders and taxpayers. The latest generation of bankers, then, are not exceptionally bad people: They simply pursued, sometimes honestly, sometimes dishonestly, a set of perverse incentives that were tolerated and even encouraged by regulators.

Attempts by the European Union to cap bonuses at 100 percent of a banker’s base salary have simply encouraged banks to find new loopholes. In the U.S., for instance, a mechanism to curb top bankers’ pay at $500,000 in 2009 failed because some banks were exempted from it because they paid back some of their bailout funds quickly, while others claimed “exceptional circumstances” allowed them to exceed the cap. In my view, when banks have access to central-bank funding there should be a legal limit to what they can pay their employees ($500,000 a year wouldn’t be unreasonable). Those wanting more would be free to join a hedge fund or an investment-banking partnership, where their talents would be better appreciated and rewarded.