Tom Hoenig, vice-chair of the Federal Deposit Insurance Corporation (FDIC), pitched his idea to bankers attending an industry conference as a more palatable alternative to the regulatory regime which has existed since the Dodd-Frank financial legislation was enacted after the 2007-2008 financial crisis.

Hoenig said that law has proved burdensome for all banks and has given those that are too big to fail a competitive advantage.

Individual holding companies standing behind big bets on companies, infrastructure or other riskier projects would have higher capital requirements than consumer banks, under the proposal by Hoenig, a Republican who has been rumored to be a possible contender for the position of vice chair for supervision at the Federal Reserve Board.

The proposal would "require large, complex, universal banks to separately capitalize and manage their traditional commercial banking activities," Hoenig told a conference of the Institute of International Bankers in Washington.

"Each intermediate holding company that houses nontraditional banking activities would become a separate affiliate, separately capitalized and separately managed from the insured bank," Hoenig said in prepared remarks.

It is likely that Hoenig's proposal would require an act of Congress to institutionalize and could not be done by bank regulators such as the Fed and the FDIC, even if those regulators acted in concert and banks agreed to breaking themselves up as he outlined. It is not clear whether the Hoenig approach would find favor on Capitol Hill or on Wall Street.

The Dodd Frank reform legislation conceived after the 2008 financial crisis demands that Wall Street set aside more wealth, or capital, to shield taxpayers from a bailout.

But Wall Street still relies on taxpayers to stand behind riskier investments rather than everyday lending, Hoenig said.

Banks that do more to protect riskier investments could win relief from costly supervision, Hoenig said.

The FDIC's principal role is to insure bank deposits when a lender fails.