There's a new abbreviation that most Americans wish they had never learned. It's TBTF, which stands for "too big to fail." It's become shorthand for financial companies that have grown so large or interconnected that when they make bad bets on the economy, taking risks that exceed their ability to withstand a run on the bank, the taxpayer has to bail them out. The unpalatable alternative to a government bailout is a second Great Depression.

The bottom line of the financial reform bill now being debated in the U.S. Senate is to prevent future government bailouts of banks or other financial institutions that have become TBTF. It contains many good provisions. What it does not contain, however, is a few simple rules that would limit the size of these institutions. The obvious way to eliminate TBTF is to make "big" smaller.

Putting a ceiling on the size of financial institutions is a controversial idea. Many experts argue that it was the interconnected nature of the failed institutions, rather than the size of their assets, that caused the Great Recession and made necessary the government bailouts.

But size matters. Simon Johnson and James Kwak make a persuasive case in their book, 13 Bankers , for why the United States should limit the size of its largest banks. They argue that the six largest banks have created a new oligarchy that has captured Washington and federal regulators. No new regulatory scheme will be able to withstand their financial and political power in the future. They must be cut down to size. Otherwise they will take outsized risks, knowing that the federal government will have no alternative but to bail them out in a crisis or gamble with allowing the entire financial system to go down in flames.

In addition to creating this moral hazard, the implicit federal guarantee creates a subsidy for the largest banks that smaller ones do not receive. That tilts the competitive field toward megabanks.

Johnson and Kwak argue for limits of 4 percent of gross domestic product for commercial banks such as Bank of America, JPMorgan Chase, Citigroup and Wells Fargo, and 2 percent of GDP for investment banks like Goldman Sachs and Morgan Stanley. Only those six megabanks would be affected by this proposal today. Democrats Sherrod Brown and Ted Kaufman are offering an amendment that would create similar limits.

The Senate bill would create a new oversight council to identify systemic risks to the financial system and a panel to liquidate large failed institutions. That's all good. But there also should be a measure of what TBTF means.