Re: Wrong question
(1) Why does banking regulation allow banks to gamble with their assets?
Because an economy where assets do not move is a dead economy. Banks lending those assets moves them around. ANYTHING you do with an asset is a gamble. Banks' gambles are generally less risky than other options (except when they stupidly believe some shysters who claim to have found a magical formula to remove the risk from sub-par mortgage loans, for example.)
(2) Why are banks allowed to charge you £20 for going 1p overdrawn for one day, and pay you no interest for investing/looking after your money in a current account for an entire year?
Because you've deposited into a crappy account at a crappy bank. If you're not getting any interest in your money, put it somewhere else, and that bank will have to change its policies or fail. If your account has no short-term overdraft allowances, then, again you've got a crappy account at a crappy bank. It's your responsibility as a depositor to seek out the best place for your money, and what you just described isn't it.
(3) Why could banks offer a 3.5% 25-year fixed rate mortgage in the 1950s, but today, are allowed to "draw you in" to a mortgage with a lowish interest rate, and then raise the rate at their whim?
Because the nature of the real estate market has changed. In the '50s, real estate was considered almost exclusively a long-term investment. Nowadays, there are people and industries who buy properties with the full intent of either reselling or refinancing within 5 years or less. Those adjustable rate mortgages were designed for those people and industries. But people in general don't read the fine print, so a lot of people with no intent to resell or refinance have made the mistake of getting a loan that doesn't fit their borrowing goals.
(4) Why does capitalism's "competition" not produce ONE bank which offers fixed fair rates?
Because "fair" is subjective, and your definition of "fair" doesn't match that number at which the banking market has arrived. Some of that is certainly due to inefficiencies in the market, but how much depends on your definition of "fair".