What I understood is that small banks have also smaller capitals and warranties, so in a situation where you want them to land as much money as possible to try to get out from a recession via capital investments all the small banks became pretty useless because they can't take the risk.

It seems the better solution should be to conglomerate banks in recessions to make them more stable and more capable of financing companies and borrow money, and break them as soon as the economy is stable again and risks are no more that big.