Tomorrow, the Reserve Bank produces the first financial stability report for 2010 and its expected to be solid, without anything to frighten the still skittish horses in the financial paddocks.

The biggest debate for years in financial services will be offstage as the big four banks try to defeat moves by APRA and the RBA to force them to hold more capital and liquid assets to help them get through any future credit crisis.

But without knowing what’s in the report, I bet the RBA doesn’t produce a group of statistics that the main banking regulator, APRA, did yesterday in their complete September 2009 quarterly look at the 55 banks operating in Australia.

The figures make, quite forcefully, the case that Australia now has four banks that are simply too big to fail. That’s especially so after the CBA purchase of Bank West and the Westpac takeover of St George.

Unlike the US and UK, where this argument continues (Fed chairman Ben Bernanke had another go on Sunday), we are just not having this debate, except when a chairman or CEO of one of the big four moans and groans in public, as Westpac chairman Ted Evans did this week.

That gave us a rare glimpse of just how hard Australian banks, or rather the ANZ, NAB, Westpac and CBA, are fighting to stop regulators from forcing them to hold more capital and liquid assets to protect themselves and the country in the event of another financial crisis.

Evans had a go at the issue in an interview with the AFR. His comments sounded much like those self-serving arguments we have heard from the CBA’s Ralph Norris.

As a former head of Treasury, Evans should know better and have a better appreciation of the systemic risk now embedded in the Australian financial system from having four massive banks that completely dominate the market.

All four bankers, and others, know the extent of this utter domination; most bank customers share that knowledge, but would be hard-pressed to put figures into their arguments.

Well, APRA’s latest report provides the evidence and support for the unease everyone should have at the current situation.

Normally it’s a compendium for train spotting banking analysts in brokerages, banks and fund managers, while it’s analysed by the banks themselves. You won’t find any of the big four banks boasting about many of the points made by APRA.

The report is well worth a read.

Our four big banks are simply too big to be allowed to fail, so we have to work out a way of first stopping that (hold more capital and liquid assets) and then managing it if failure can’t be prevented.

And it’s no use Westpac and the others arguing that it can’t happen. Australian banks have gone to the edge in the past two decades. The state banks in Victoria and South Australia all but failed and were bailed out.

The ANZ was crippled by dud property loans in the recession in the early 1990s and worse, Westpac was rescued by support from the AMP and a huge rights issue. For a while Westpac’s fate hung in the balance. Failure can happen and we should plan on that basis.

After all Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual are no longer with us or independent and Citigroup is a basket case, along with Bank of America. Three years ago, who would have thought that could happen?