The new president of the Federal Reserve Bank of Minneapolis,Neel Kashkari, has gotten off to a bold start. In a speech thisweek, he warned that almost eight years after the financial crisis,the largest U.S. banks still pose a grave risk to taxpayers and thebroader economy. Dealing with this problem, he said, will require a“transformational restructuring.”

He's right that the financial system needs further reform, andit's good that he's open to radical proposals. But one thing shouldbe clear at the outset: The best way to make banks safer is alsothe simplest. Require them to finance themselves with more capitaland less debt.

Kashkari played a central role in the U.S. Treasury's efforts toshore up the financial system in 2008. He knows the terrible choicethat policy makers faced: rescue big banks at taxpayer expense, orrisk a worse disaster. He's convinced that—despite the complexpanoply of rules and mechanisms put in place since then—thegovernment will be in much the same position when the next crisishappens.

“We hated that we had to bail out the banks,” he said Wednesdayon Bloomberg Television. “None of us wants to be in that situationagain.”

He says three far-reaching options should be looked atseriously. The government could divide large banks into smaller,less systemically important entities. It could tax leveragethroughout the financial system. Or it could substantially raisecapital requirements. Kashkari says the Minneapolis Fed willundertake this study and suggest an “actionable plan.”

Breaking up the banks has great populist appeal because itsounds like punishment, but the idea is seriously flawed. Thegovernment isn't competent to judge how banks could best be brokenup, and a larger number of smaller, inadequately capitalized banksmight be just as dangerous as a few big ones. Excessive leveragedoes make the system more fragile, but taxing it could actuallyencourage institutions to take greater risks to compensate for thecost. Having done so, they might count even more on the governmentto rescue them when things go wrong (after all, they paid theirtaxes).

The capital approach is much more straightforward. Equity ismoney from shareholders that banks can invest. Unlike debt, itmakes banks more resilient by absorbing losses in bad times.Requiring more of it curbs banks' reliance on implicit governmentsubsidies and makes shareholders more responsible for risk—creatinga natural incentive to devise simpler and more transparentoperations. Research and experience suggest that the benefits tothe economy would far outweigh the costs.

Kashkari will do taxpayers a great service if he can bringrenewed attention to the unfinished work of building a saferfinancial system—especially if he recalls another lesson from thefinancial crisis. Regulators are defeated time and again bycomplexity. Keep it simple, and the right kind of transformationwill follow.