It would actually be beneficial to put pressure on C to shrink at the margin – that is, to move it in the direction of being a $ billion bank instead of a $ billion one – but since it lies below the cap, it is completely untouched by the regulation.
Suppose instead we attack the problem by imposing capital requirements that are an increasing function of bank size. This price-based approach creates some incentive for all three banks to shrink, but lets them balance this incentive against the scale benefits that they realize by staying big.