Eamonn Butler (yes, one of my bosses):
These days, banks are huge. If a big name failed, it would be an enormous catastrophe. The Bank of England rightly doesn\’t want to risk that. So why exactly are banks so huge these days? Here we come to the ultimate cause of this crisis – governments. The authorities\’ very anxiety to keep customers safe has made them introduce more and more detailed and onerous regulation. The only banks that can afford to deal with this bureaucracy are the big ones. Regulation has made the banks fat – and their customers complacent. It would be much healthier if the banks were competitive and customers eyed them up more carefully before trusting them with their savings.
Regulation creates barriers to entry: thus there are too few entrants and the incumbents grow to a size where they are indeed deemed too big to fail.