Have banks gone too far seeking to appease regulators by avoiding any clients deemed risky?

Probably!  However, given the way regulators have clamped down on the banks, who would blame them.  Technology, along with appropriate other control mechanisms, does offer a way of allowing balance to be restored.  Being able to capture and analyze more information in a much more granular manner should allow banks to make more informed and detail-orientated decisions about risky clients.  

Technology allows for enhanced monitoring not only of clients and their transactions but also of the banks themselves - allowing risk decisions to be reevaluated at the earliest sign of trouble, and importantly, enabling banks to take action before regulators get involved.

Using technology and data effectively can therefore provide a bridge for banks who seek a more balanced approach to dealing with riskier clients.