Banks have a primary role in money creation, which is essential for society. This is the justification for regulation. Because left to their own devices, banks and financial entities are very likely to be the locus of various scams, ponzi schemes, and bank runs. When they collapse their is a huge public cost. Therefor, they are providing a "public good." Basic economic theory (not to say I totally believe it) says the "optimal" level of public goods is not provided by a free market mechanism.
So banks are a quasi public institution, and there is tension between their public and private roles. Arguments that banking should just be a totally regulated public "utility" are not uncommon.
On a practical level, it seems obvious to me that the To Big To Fail banks have a major mismatch between the risk/reward trade off. The incentives to take risks when you're managing a company that you know will be bailed out is just too huge to ignore.
So banks are a quasi public institution, and there is tension between their public and private roles. Arguments that banking should just be a totally regulated public "utility" are not uncommon.
On a practical level, it seems obvious to me that the To Big To Fail banks have a major mismatch between the risk/reward trade off. The incentives to take risks when you're managing a company that you know will be bailed out is just too huge to ignore.