Banks from too small to too big - Is there room for innovation?

From too small to survive to too big to fail, there has been a significant change in bank risk given the huge economies of scale and consolidation in this sector. 

In the 1930's the problem in banking was an issue of too small to survive. Banks during the Depression were failing left and right. The same thing happened during the great thrift upheaval in the late 1980's. The problem was not size but number. 

Now the banking sector has changed. The small banks have been under the pressure of consolidation, and with commercial real estate problems, the issue of further consolidation will again be on the table, yet the real threat is too big to fail. 

The government will bail-out any large institution based on the threat of contagion. This does not mean that banks are cheap or good investments for shareholders, but it does tell us there is limited discipline with large institutions beyond what is required by regulations. With systematic stress testing, there will be greater similarity with large banks who meet stress-testing requirements. Regulation will drive many key decisions which will increase systematic behavior.

Can there be innovation in banking in a too big to fail environment? This is a question I have been thinking about and not sure of the answer. What have been the new innovations in banking? We know that technology has been used to control and cut costs, but this does not fall under product development.