WASHINGTON – Is "too big to fail" too big?

American International Group has swallowed $170 billion of taxpayer money since October while still sprinkling bonuses on the very people who drove it to the brink of failure – a failure that might have brought down the whole financial house of cards.

Citigroup Inc., another stumbling giant, is on its third multibillion-dollar federal rescue plan.

While Federal Reserve Chairman Ben Bernanke and White House officials fume about reckless behavior and greed at these institutions, none is feeling bold enough to let another big financial house fail.

They tried that on Sept. 15, when investment bank Lehman Bros. slid into bankruptcy and triggered a rush to the exits by investors fleeing mortgage-backed securities.

Mr. Bernanke, in an interview on CBS' 60 Minutes Sunday and in a Washington speech last week, said the world came close to financial collapse in the second week of October.

Doomsday was avoided as governments, following the example of Britain's Prime Minister Gordon Brown, stuffed taxpayer money into their largest banks.

"Lehman proved that you cannot let a large, internationally active firm fail in the middle of a financial crisis," Bernanke said on 60 Minutes.

In a speech at the Council on Foreign Relations, the Fed chairman said too-big-to-fail was "an enormous problem" that would require close regulatory scrutiny of the way these firms manage risk.

Why not just break them up before they get so big?

Bernanke did not tackle that question. I put it to two finance professors in Dallas. Both said size was not as important as oversight.

"If we have the right set of rules in play, the too-big-to-fail risk goes down," said Southern Methodist University finance professor Kumar Venkataraman.

Accounting rules that compel banks to keep securities derivatives on their balance sheets would force them to beef up reserves and limit the number of these debt contracts they can write.

"That in itself will restrict the activities of banks," Venkataraman said.

David Mauer, a finance professor at the University of Texas at Dallas, said whether it's AIG or Exxon Mobil Corp., size can give corporations economies of scale that are valuable for shareholders and customers.

"AIG's regular insurance business is extremely healthy. There are no problems. From that standpoint, AIG was not too big," he said.

"The leaders of Exxon Mobil would not have continued to grow if they did not view they had economies of scale in both producing as searching for energy products. One could make the argument that having an oil company the size of Exxon Mobil is an effective way to go."

I can hear the furious pounding of keyboards by those who disagree with these arguments.

Exxon merged with Mobil at a time when deregulation and market forces were in the ascendancy in American public policy.

Mauer says Citigroup grew so big that it should be broken up, while Venkataraman faults Congress for repealing the Glass-Steagall Act, a Depression-era law that kept commercial banks like Citigroup from growing into Wall Street's investment business.

But the thrust of their ideas for too-big-to-fail institutions is toward greater regulation, not trust-busting.

"You can go down this road two ways: Tell institutions what they can do, or design accounting standards and market systems where these players play in transparent markets," Venkataraman said. "If we do that, we significantly reduce the risk of too big to fail."

Mauer expects to see a federal czar coordinating the supervision of financial institutions so big that their collapse could bring down global finance.

"There's always some whippersnapper who figures a way around some regulation," he said. "But because we already know that's going to happen in another 20 or 30 years, does that mean we have to cut these corporations down to bite-size units? I would argue no."