When Congress passed the Dodd-Frank financial reform bill in the summer of 2010, the Obama administration made happy talk about putting an end to “too big to fail” banks. Hold the champagne. The Federal Reserve Board has just created the fifth-largest bank in the country, despite a flood of warnings from community advocates and smaller banks.

Skeptics in financial markets are entitled to their skepticism. Capital One has been rapidly assembling this new behemoth, acquiring local deposits and credit card operations in a series of mergers. Federal Reserve governors reviewed the complaints and rejected them. In banking regulation, the “new normal” so far looks a lot like the “old normal.”

Of course, it is impossible to say this marks an end to reform. But it’s a real downer for the reform advocates. They have pleaded for a different perspective from the Fed regulators—weighing the “public benefits” of bank consolidations against the “adverse effects,” as Dodd-Frank requires. But the Fed made this calculation on very narrow grounds.The governors concluded that one more very large bank will not by itself bring down the system. True enough. But each decision the Fed makes now on applying the new rules sets a precedent for its future decisions. How big is too big? The Capital One decision seems to say size is not an issue.

Reform groups like the National Community Reinvestment Coalition argued that the new, enlarged Capital One is a bad bet on its own terms because its business model is grounded in credit card debt, with a heavy portion of so-called “subprime” credit card holders—borrowers much like the “subprime” mortgage holders now lined up for foreclosure and bankruptcy. When the credit card bubble bursts, these critics say, the government will stick with the same bad choice—bailing out the creditors when the debtors fail.

Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.

The Fed and other regulators were given the impossible job of changing the behavior of these megabanks without messing with their awesome size and financial power.

Good luck to the Fed. The new regulatory rules are still being written, and the banking industry has flooded Washington with comments, questions and fine-print objections. Some say the bank lobbyists are in a purposeful stall, hoping to delay the final regulations until they get a more banker-friendly president. I suspect the stalling tactics are designed to outwait the public anger.