'Too big to fail' debate drags on

"There is a substantial advantage to these institutions," he said. "That's like saying, 'I bought it at Neiman Marcus."

But Sheila Bair, the former head of the Federal Deposit Insurance Corporation and fellow big bank critic, contended that such a designation is far from a boon for the bank receiving it, as they are subject to increased scrutiny and regulatory requirements.

"This designation is not a badge of honor but a scarlet letter," she said.

When asked directly whether Dodd-Frank ended "too big to fail," the panel split. Jeffrey Lacker, head of the Federal Reserve Bank of Richmond, joined Fisher in saying it didn't, while Bair and Tom Hoenig, the FDIC's vice chairman, insisted the law provided the tools to end it.

Lacker insisted that when regulators are handed discretion for how to handle ailing financial institutions, it can reinforce the expectation of a rescue, which, in turn, could force policymakers' hands to meet that expectation.

"When push came to shove in the spring of 2008, markets had built up a tremendous array of arrangements that were predicated on our support, and we were boxed in," he said. "The problem is to defeat that expectation at the core."

And under Dodd-Frank, Lacker said banking regulators are given a "tremendous amount" of discretion to address failing firms, meaning the potential for future bailouts to meet expectations is still present.

With skeptics vocally calling for the nation's largest banks to be trimmed in size, some of the financial sector's biggest players have joined forces with the White House in insisting that the financial reform law ends the "too big to fail" issue. Meanwhile, lawmakers in both parties, including some that backed Dodd-Frank, remain considerably wary that the job is finished.

For their part, Republicans have long criticized the Wall Street overhaul, arguing that it actually codifies "too big to fail" by identifying significant firms, while subjecting the financial sector to onerous regulations. Backers of the law contend that the tools are in place to handle any struggling financial firm, thanks to the orderly liquidation authority granted to regulators, as well as the requirement that banks establish "living wills" to detail their dismantling if they were to face collapse.