IT HAS taken almost two years, but the debate over the restructuring of American finance has at last reached the issue at the heart of the industry’s reregulation: systemic risk. The idea is simple, the execution controversial. Policymakers want to help prevent the ailments of a single institution from infecting the system as a whole by limiting the exposures that firms have to any one counterparty. The implementation, typically of the mind-numbing Dodd-Frank act, is horribly complex.The core provision on “single counter-party exposure limits” comprises only 81 words among the hundreds of thousands in the act. The final rules were supposed to be in place by January 22nd, but the Federal Reserve issued its initial proposal just weeks before, on January 5th, and the comment period, prompting a deluge of letters, ended only on April 30th. Some of the comments were incoherent rants. The ones from trade groups and financial firms are far from objective. But the depth and the extent of the criticisms will require a detailed response.The law calls for institutions to limit their exposure to any single institution to no more than 25% of their capital, but the Fed has gone beyond this (as permitted in the act). It has proposed that large, important institutions should have no more than 10% exposure to a counterparty. It also wants lenders to provide it with ongoing credit-exposure...