I think that trend reached its peak with the CPDO (http://www.interfluidity.com/posts/1163375565.shtml), which was basically a contractual obligation to pursue Gambler's Ruin.

They should regulate banks like in New Zealand: Do not regulate minimum safety standards and give state guarantees to depositors --- but instead make banks give full disclosure on their assets and obligations and let depositors (= the market) judge.

Really the same approach like with stocks et al.

Markets usually do this, by finding ways around the regulations. In the early 20th century, trust companies could get around bank regulations, so they made riskier loans and grew faster, which worked well for a while. And hedge funds do that now -- many of them offer investment banking services (e.g. market making, debt structuring, direct investment/underwriting, etc.) without the same set of rules as regular banks.

Yes. But they are opaque.

Mandating transparency (and only transparancty) could be one of the few good regulation.

Though I heard that some besieged investment banks have been disclosing their obligations fast - to restore or keep confidence in their liquidity. (I'd have to re-read the Economist for details.)