U.S. Attorney General Eric Holder's statement yesterday -- that some banks are too big to prosecute -- may have been a Kinsley gaffe: the kind of misstatement that accidentally reveals the truth.     

Justice Department officials for months have been denying that big banks are above the law. Then Holder told the Senate Judiciary Committee that the size of some large banks has made it difficult to bring criminal charges. He said "some of these institutions have become too large" and that their size "has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate." He added that bank size was something Congress would "need to consider." 

It was quickly interpreted that Holder was giving too-big-to-fail banks a get-out-of-jail-free card. But I think Holder was making only a half-Kinsley. He was stating the obvious -- that criminal charges can threaten a bank's existence and endanger the U.S. or the global economy. 

Keep in mind that an indictment isn't proof of guilt. Once a bank is indicted, however, customers will almost certainly withdraw their funds and companies will almost certainly look elsewhere to issue shares or debt, making failure a self-fulfilling prophecy. No amount of public relations can restore the trust factor to a bank's reputation, once lost. 

Holder was responding to questions from Senator Charles Grassley, the Iowa Republican who, along with a growing number of senators in both parties, is especially critical of the lack of prosecutions against banks for their roles in the financial crisis. 

These lawmakers call the large banks "too big to jail," and only half in jest. They should refresh their memories. Ever since the U.S. indicted -- and killed off -- accounting firm Arthur Andersen for its role as the auditor of Enron Corp.'s cooked books, Justice has been cautious about indicting entire companies, preferring to use deferred prosecution agreements instead. 

In the Andersen case, the Big Five accounting firm closed up shop in 2002 after it was found guilty of criminal charges in a lower court. Three years later, the Supreme Court unanimously overturned that verdict. Meanwhile, 85,000 people lost their jobs because of the actions of a handful.

It seems painfully obvious that there has to be a middle way between no prosecution and putting a large institution out of business with an indictment, or even a verdict that could be overturned later. 

Justice already knows what to do: It recently secured a guilty plea from the Japanese subsidiary of UBS AG over allegations that the bank rigged interest rates. A Royal Bank of Scotland Plc subsidiary also pleaded guilty to settle similar criminal charges. We need more prosecutions like those.

Justice lawyers could also do a better job of targeting the individuals involved in interest-rate rigging or other financial misdeeds. Sending top-ranked bankers to jail would be a more powerful deterrent than indicting a faceless corporation.

As for fixing the too-big-to-fail problem, regulators know the answer to that one, too: more capital. Demanding that large banks hold as much as 20 percent of capital relative to assets would make it less likely that a bank would be too big to jail in the first place.

(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)