The largest Wall Street settlement with the US government in history is under threat as JP Morgan Chase CEO Jamie Dimon faces off against US Attorney General Eric Holder.

The financial sector, the housing industry and DC insiders are watching the latest crisis emerge in discussions over a settlement involving JP Morgan’s purchase of Washington Mutual during the 2008 financial crisis. The Federal Deposit Insurance Corporation has reportedly refused to accept the latest proposal from JPM that it shouldn’t be responsible for the enormous potential liability stemming from mortgage bond underwriting and securitization at the heart of WaMu’s business before it collapsed into the arms of JPM at FDIC’s encouragement at the height of the crisis.

The stakes are much higher than eventual decision on a technical argument over the contract language, and even higher than the potential billions whoever ends up holding the legal liability for WaMu’s debt is at risk for.

The FDIC proposed $13 billion settlement is only part of a much larger government deal the Justice Department has been hoping to announce with the bank over the activities that led to it’s role in the financial crisis. The Federal Housing Finance Agency has already taken a deal outside Holder’s multi-part process, and now the entire potential settlement is at risk to both the bank and the government’s dismay.

The implications for an interrupted or cancelled settlement process are dizzying. There is a possibility that the entire credibility of the government’s approach to asking banks to rescue each other could be at risk from a collapsed settlement, just as the government and markets are seeking to move on from the continued legal wreckage of a financial crisis that continues to weigh on the national and global economies.