In New York City, a taxi medallion — that is, the right to own a taxi in the Big Apple — costs $917,000. In 2003, a medallion would set a hack back around $200,000.

Why the steep price increase? Supply and demand. There are around 8.5 million people living in New York City, and only 13,200 or so taxi medallions. Experts estimate there is a need for around 15,000 to 17,000 medallions, but the City of New York just doesn’t issue them. So why not issue more medallions? Blame the 1937 Haas Act, which limited taxi medallions in New York to 13,595.

I share this tale of demand-driven price escalation, because bank charters appear to be going the way of New York City taxi medallion. This is not good.

Last year, for the first time in anyone’s recollection, there were no new bank charters approved, with the exception of three specifically blessed to acquire failed banks. With no new bank charters, the value of existing charters is going up to the point where smart investors are passing on banking.

I met with one on Friday. He explained the troubled economics of purchasing even a small bank charter. Say the bank has $500 million of assets and the price for the bank charter is $20 million. As is common in such transactions, the assets often end up being worth less than the seller claims. If the asset values are, say, worth 10% less than their claimed value, the bank purchaser ends up paying $70 million for the charter, not $20 million.

Historically, this would might be a risk worth taking, but not in the wake of the credit crisis, when owners of bank charters — abetted by regulators — continue to account for assets at inflated values. When you couple this with the decline in the number of bank charters, you have a recipe for investor failure.

Without bank investors, banking will die. Already we are seeing startups forced to use existing bank charters to power their innovation strategies. But those rent-a-charter prices are going to continue to increase — and that will dampen innovation.

On the surface, the regulators might be satisfied with this, because the fewer the banks, the more healthy the remaining financial institutions. But this is a fallacy of epic proportions. The lack of bank charters is creating a myopic ecosystem, whereby existing banks — whether they are qualified or not — have an ever-reducing impetus to innovative or improve their service to  customers. Why regulators would want that is beyond me.

As JPMorgan Chase’s Jamie Dimon indicated recently, the big banks can handle the compliance costs; small banks are struggling to stay on top of the compliance burden. If there is not a normative flow of innovation and entrepreneurship in banking, that burden will eventually suffocate banking, and we will be left with the four major banks. And very few others. Even Dimon, I imagine, wants a healthy banking industry, and a healthy banking industry means reasonably priced bank charters.