In the US at least regulators actively encouraged banks to consolidate prior to the financial crisis. Regulating a few large banks was thought to be simpler th

In the US at least regulators actively encouraged banks to consolidate prior to the financial crisis. Regulating a few large banks was thought to be simpler than regulating a larger number of smaller banks. Smaller banks also were typically regional which had the effect of concentrating risk. For example a crash in a commodity like oil or corn would take down many banks in a region and exacerbate the regional downturn. Larger banks had a more diversified portfolio and could better weather a regional downturn. Larger banks also reduce the risk of a run on the bank because during a run the money tends to simply slosh between large banks. But the effect was to go from a diverse ecosystem of banks to mono-culture. Lower costs and higher productivity but more risk of losing the entire crop.