The story is not, as reported, Martin nixes bank mergers. The story is: Martin allows bank mergers. Just not these ones, not now. As disappointed as the banks may feel, for the government to allow for even the theoretical possibility of banks merging is a historic shift in policy.

On both counts -- opening the door to mergers in principle, but disallowing the present proposals -- the finance minister has made the right call. It is true this did not take a great deal of courage, given the public's antipathy to the banks. But just because a thing is popular doesn't make it wrong.

We should be clear just why it should be anybody's business but the banks whether they merge or not. It isn't a matter of whether the mergers would or would not yield efficiency gains: That is for the banks, and their shareholders, to determine. Nor is it sufficient grounds to block a merger that jobs might be lost: The banks are not make-work projects.

Where the mergers enter the public realm is in so far as they would put the banks in a position to exploit others. Ordinarily we expect competition to prevent that. So long as the people who do business with the banks -- depositors, investors, suppliers, employees - - have other options, the banks are constrained from taking advantage of them.

But where one or two firms hold a dominant share of the market, there is less incentive to keep prices at competitive levels. More critically, where there are barriers preventing other players from entering the market, the dominant firms can go on reaping monopoly profits without fear of attracting competitors.

It is at least arguable that the two merged banks would have a dominant share of the market for financial services -- if not nationally, then certainly in many local markets and some product lines. That at any rate was the conclusion of the Competition Bureau, and I see no reason to dispute it.

The real question is whether, with fewer banks contending for consumers' favour, other players, domestic or foreign, might be able to step in to provide competition in their place. That would be desirable in any event. But it is imperative if existing banks are to be allowed to merge.

Indeed, it was the competitive threat from foreign banks, with their massive economies of scale, that supposedly drove the Canadian banks to merge in the first place. Absent such rivals, then, the mergers are not only unpalatable but unnecessary.

Obviously there are plenty of potential competitors for the big banks: smaller regional banks, credit unions, insurers, mutual funds, plus foreign institutions of every description.

What is less obvious is whether any of these could provide effective competition to the two banks that, post-merger, would control upward of 65% of the market.

It isn't just the banks' stellar service and unbeatable prices that explains their dominance.

They are also protected by all sorts of barriers to entry. Many of these are legislative: laws prohibiting any one shareholder from holding more than 10% of a bank, or barring non-banks from access to the payments system, or requiring that foreign bank subsidiaries be separately capitalized in Canada.

But others have been erected by the banks themselves. Brand-name identification is one, as is the Interac system of automated teller machines, or was until the competition cops cracked it open. The most formidable barriers are the banks' vast chains of street-corner branches: still the most important forum for many transactions, and hugely expensive for any rival to duplicate.

In time, this Maginot line of branches may be breached, as telephone and Internet banking grow more widespread. But that time is not yet here. Similarly, the government could abolish all remaining legal barriers to entry tomorrow, and it would still be some years before the banks' position was seriously eroded. Perhaps, as a short-term fix, the banks could be required to sell off parts of their business to other firms. But that would only widen the circle of oligopoly, without really opening up the financial services sector to competition.

So what is the hurry? Rather than rush about patching up the system in the mergers' wake, why not take the time to do it right? Reform financial services regulation. Take away the banks' protections. Then let them merge.