The Dallas Federal Reserve Bank released a report yesterday calling for the end of “Too Big To Fail” and the breakup of the largest and most systemically important banks.

In a letter signed by Richard Fisher, the conservative president of the bank, he endorses the research report, and he says that the Dodd-Frank law did not do nearly enough to end the dynamic of Too Big to Fail, and that more must be done immediately to reach this outcome.

Memory fades with the passage of time. Yet it is important to recall that it was in recognition of the precarious position in which the TBTF banks and SIFIs placed our economy in 2008 that the U.S. Congress passed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). While the act established a number of new macroprudential features to help promote financial stability, its overarching purpose, as stated unambiguously in its preamble, is ending TBTF.

However, Dodd–Frank does not eradicate TBTF. Indeed, it is our view at the Dallas Fed that it may actually perpetuate an already dangerous trend of increasing banking industry concentration. More than half of banking industry assets are on the books of just five institutions. The top 10 banks now account for 61 percent of commercial banking assets, substantially more than the 26 percent of only 20 years ago; their combined assets equate to half of our nation’s GDP. Further, as Rosenblum argues in his essay, there are signs that Dodd–Frank’s complexity and opaqueness may evenbe working against the economic recovery. In addition to remaining a lingering threat to financial stability, these megabanks significantly hamper the Federal Reserve’s ability to properly conduct monetary policy.

I’m willing to have Fisher fill in at the ‘Lake any time, with opinions such as these. Indeed, as the chart shows above, the biggest by-product of the 2008 financial crisis was the further consolidation of the nation’s largest banks. The only measure that sought to end this march of Big Finance, the Kaufman-Brown Safe Banking Act, was defeated easily in the Senate.

Fisher now marks a trend of conservative inflation hawk Fed Presidents finding serious fault with the state of the financial sector. Former Kansas City Fed Bank President Thomas Hoenig – who became President Obama’s choice for a commissioner of the FDIC – shared this perspective. It seems that only the conservative bank presidents can properly assess the “perversion of capitalism,” in the words of the Dallas Fed, that comes with runaway finance. You don’t have to agree with Fisher or Hoenig’s views on inflation, for example, to agree with them that allowing banks to get this big and this unmanageable in size has tremendous implications for our economy. This is from the Dallas Fed’s report:

Capitalism requires the freedom to succeed and the freedom to fail.

Hard work and good decisions should be rewarded. Perhaps more important, bad decisions should lead to failure—openly and publicly. Economist Allan Meltzer put it this way: “Capitalism without failure is like religion without sin.”

Capitalism requires government to enforce the rule of law. This requires maintaining a level playing field. The privatization of profits and socialization of losses is completely unacceptable. TBTF undermines equal treatment, reinforcing the perception of a system tilted in favor of the rich and powerful.

Capitalism requires businesses and individuals be held accountable for the consequences of their actions. Accountability is a key ingredient for maintaining public faith in the economic system. The perception—and the reality—is that virtually nobody has been punished or held accountable for their roles in the financial crisis.

I couldn’t have said it better myself. This loss of accountability, this two-tiered system of justice, is socially and economically corrosive. It shifts wealth into the hands of those protected from their own mistakes by the system. It puts a premium on political influence rather than quality and sound business fundamentals. It turns a democracy into a kleptocracy. It imperils recovery, any recovery, because it fails to reckon with the heart of the problem on the banks’ balance sheets.

And the Dallas Fed, one of the bastions of the establishment, an organization made up of regional banks, well understands this.