Too few banks?

Here's an interesting comment from "Ben Franklin" (post number 73) on the Belmont Club:

The only other thing I would add is that I am in the advertising industry and most of the ads for sub-prime loans had dried up before the recent bail-out bill. As soon as that went through the volume for these ads went up 10 times. Whatever the government did to “fix” the problem ain’t working because all they did was just give everyone who didn’t make money the first time around another shot at the craps table.

The small business community that I am a denizen of is absolutely livid at the bailout because they see very clearly what has happened. They have good noses for how to make money and can see how the government system could be exploited by people less wise or scrupulous than they are. It seems funny this should be the case when all of the Harvard MBA’s in Washington and on Wall Street drove right into it.

So the sub-prime lenders haven't learnt and the spending goes on. But why not if the taxpayer will bail you out? I see that the American small business community opposes the US bailout but I get the impression that bank bailouts are more popular here in the UK. So why the difference?

I'd guess that it's because there are far more banks per-capita in the US than in this country. Effectively we have only five banks that cater for almost all business customers. If even one goes down the contagion could destroy any or all of the other four. In the US there's a greater likelihood that your bank is sound. So what is the British government proposing? A merger between Lloyds and HBOS reducing the total to four! Or even fewer if nationalisation continues. This is the opposite of what we should be doing. It would be far healthier if we had more banks that competed vigorously and under such a regime the failure of one bank would be less likely to be systematic.