That a collection of rational financial institutions does not necessarily make a rational financial sector. In other words, rational behaviour at the individual institutional level does not aggregate to collective rationality because of the fallacy of composition. Financial institutions are notoriously prone to herd behaviour.
They have a strong collective tendency to over expose themselves to the same type of risk during an upturn, and become overly risk averse during a downturn which can lead the whole system on a downward spiral of risk aversion, market seizure and instability.