(By Martin Hutchinson) Former U.S. Federal Reserve Chairman Paul Volcker and Bank of England (BOE) Governor Mervyn King think that banks that are considered "too big to fail" should be broken up. The House Financial Services Committee is drafting a bill that will make banks pay for other banks' bankruptcies.

Others have suggested reviving the Glass-Steagall Act – the 1933 legislation that forced financial institutions to separate their commercial and investment banking businesses. Glass-Steagall was repealed in 1999.

It's enough to make your head spin. And don't think that our elected "leaders" aren't feeling just as overwhelmed. At the end of the day, however, there has to be a solution to the banking mess. Doesn't there?

Leaving everything as it is isn't an option, or at least it is a very bad option. In the short term, it may have been necessary to bail out all the major banks and investment banks – save for the unfortunate Lehman Brothers Holdings Inc. (OTC: LEHMQ).

In the long run, this has established a presumption that any financial institution that is too complicated for politicians to figure out – and that's big enough to make them afraid of losing it – can pretty well do what it likes. And that includes paying its senior managers grossly excessive bonuses within a year of receiving a state bailout – can anyone say Goldman Sachs Group Inc. (NYSE: GS)?

This also gives these particular banks an unfair advantage in funding – and in accessing large pools of capital. The past year has demonstrated all too well that these particular institutions are only too happy to use this advantage to squeeze their smaller competitors out of the market.

On the other hand, I don't think that bringing back Glass-Steagall – as it was – will do the job properly. Today's investment banks just aren't the same as they were in 1935. In fact, they're even more sophisticated today than they were as recently as 1985.

Trading dominates investment-banking activities more than ever before.