Competition in Banks

Fr the Economist :
"Australia’s banking system has come through the crisis intact, for example,
and the former head of the country’s central bank, Ian Macfarlane, has said that
one reason for this is that the biggest four banks were banned from merging.
Freed from the fear of a takeover, bank executives did not have to chase profits
as aggressively as their brethren in America or Britain.
Another case where an unchanging market structure has gone
hand in hand with financial stability is Canada. It still has the same five big banks
it had two decades ago and none has needed to draw on state support."

I pretty much agree with this part of the article. There's a part I don't agree with tho. 

"But the remedy for worries about food safety is not to reduce competition
but to regulate and enforce standards. So it should be in banking.
Competition among airlines could in principle compromise passenger safety.
That it does not is because of regulation. ... [It] is rarely suggested that food
firms or airlines are less safe because of too much competition."

Well, IMHO there are v important differences between banking
and airline or food industries.
In banking, there is a perverse incentive to take on additional risks
with the clients money. The more risk you take in good times, chances
are, the more $$$ you make. You pay clients higher returns and
everybody applauds your achievements. You not only get away
with taking risks, you even get rewarded for it. In fact, this can
go on for an extremely long long time in the financial world.

Whereas in airlines or food, the incentive to play with yr customers
lives by using faulty planes or hazardous food materials is lesser.
The negative effects are much more apparent - a plane crashes or ppl
get food poisoning - and also happen much faster. The costs you might
save do not really cover the downside from such disasters.
And no one is gonna applaud you for offering cheaper airlines tix
because yr planes are made of junkyard parts.
So it's different really...

Now, Im not saying we dun regulate these banks. Of course regulations
are needed. But it is naive to think that banking can remove the perverse
incentives towards risk taking. Just wun happen.

Indeed, banking cld be the one industry where competition might
not maximise social welfare. This is like totally flying in the face
of what Adam-Smith quoting Market Fundamentalists believe.
But reality proves that this might the case.