John is right.

Under the Glass Stegall Act those large investment banks would have been outside of the FDIC protections and would have ate their losses as they should have. 

However, with it's repeal there has been all sorts of chicanery and collusion between the fed, govt, and big investment banks to get all these risky derivative bets "covered" under FDIC and/or transferred over into a liability of the taxpayer to bail them out ensuring they don't have to take the loss on their risky bets.

I just saw someplace that bank depositors may now even be behind derivative holders in getting paid should a bank fold or go into a bail in situation.

I'm getting to the point that I have read so much about all of this and can remember seeing it, and may have even saved it to my hard drive, but have so much material now that I can't often find the references that clearly illustrate the points I wish to convey.

The complex subject matter makes it difficult to discuss and present in a simple logical way and unfortunately I do not have the gift that many of the original authors of articles I have read do.

I'd say a $1 of capital policy and a reinstatement of Glass Steagall (I think it was slightly under 20 pages) and removing the safety net of taxpayers backstopping risky bets by investment bankers. ( ie private profits and public losses) would remove a lot of systemic debt and leverage in the system.

$1 of capital policy sort of summed up as follows.

This was referenced earlier by Mr. Denninger earlier but is now off line so I'm paraphrasing this from memory. It's covered a little in the link below.

You put all these derivatives on an exchange and tell them they have a hard date of 6 months to get their cards in order to figure out which ones are good bad or whatever. If one side cannot back/deliver on the promises the derivatives are void and torn up neither side gains or loses.  I mean if I guarantee I can jump over the empire state building that is not a valid contract to begin with and has no way of being enforced same with all of these contracts.

After the 6 month period every one of them goes on an open exchange for all to see and examine. Every night mark them to market and make margin calls. If you can't deliver due to value fluctuations your assets are seized and sold to clear the transaction. This de-fangs the derivatives monster out there permanently.

The rest of the $1 of Capital plan is here. Thankfully it is still available to view. 

http://market-ticker.org/akcs-www?post=209282

A previous derivatives discussion here from 2011

http://talk.newagtalk.com/forums/thread-view.asp?tid=263204

And a external link John gave in that discussion

http://theeconomiccollapseblog.com/archives/the-coming-derivatives-crisis-that-could-destroy-the-entire-global-financial-system