[imgabe]

If there's a dozen\* small banks it seems less likely that they would all fail at the same time than if there's only three humongous banks. Diversity and all that. Hence, we could limp along with 6/12 small banks rather than being screwed and having no financial system if all 3 major banks go belly up.

\* Specific numbers obviously made up for illustrative purposes only.

[yummyfajitas]

That's true if bank failures are uncorrelated, which is so far from reality as to be an irrelevant assumption.

If this were true, then the US banks should have weathered the financial crisis far better than Canada's (highly consolidated). That's the complete opposite of reality.