The worst part of the financial crisis four years ago was that a problem caused by banks too big and too interconnected resulted in banks that were ... even larger and more interconnected.

Bank of America (BAC 1.53%), JPMorgan Chase (JPM 0.65%), Citigroup (C 0.26%), and Wells Fargo (WFC 2.73%) alone hold about 40% of the deposits in America, up from 32% before the crisis.

So, put two and two together: If we were to have another lending bubble and credit crisis (and they're inevitable), the consequences could be more severe than 2008.

That's scary.

Last week, I asked Stanford economist John Taylor, a former Treasury official, what he thought about today's concentrated banking sector. Here's what he had to say (transcript follows).

Morgan Housel: We have a significantly more concentrated, larger banking sector today than we did in 2008 when we were dealing with the problem of too-big-to-fail banks. What does that mean going forward for us? It seems to me that it's almost inevitable that we will have another financial crisis, and due to the deeper concentration today, it will be in the same situation we were in 2008.

John Taylor: Well, it's a real concern. We haven't really dealt with the too-big-to-fail problem. If anything, it's been accentuated. The solution to that seems to be mainly trying to simplify the regulations -- not make them more complicated -- so that the Federal Reserve, or whoever's in charge, has a decent chance of exercising the supervisory responsibility that it has. I think capital is always a good way to focus on that, making sure capital is adequate, but also that the rules are simple enough that the regulators can enforce them.

The problem that I see in this recent episode was that the existing rules were not enforced. Instead, we've gotten many more rules, including through part of the Dodd-Frank Bill, Title II, really kind of an automatic bailout mechanism, and I think that raises lots of questions about the future -- of the kind you just mentioned.

Morgan Housel: Do you feel better about the banking system today than you did in 2008?

John Taylor: I think right now, the credit issues are not as severe, but I would not feel more comfortable with the too-big-to-fail. We're not in a boom situation at this point with all the search for yield that that entails. On the other hand, we're in a situation where near-zero interest rates are encouraging searches for yields and more risk taking." 

End transcript.