5D Mark II - Banding Problem on JPEGs
The bands seems to disappear as the JPEG file size is increased. This does not seem right to me. Are the bands simply the result of a file size or is something else going on?
You started out with a 25 megabytes large file (compressed!). You cropped away some of it; the leftover is still over 14 megapixel, and you created a JPEG file of about 390 kilobytes (that must have been "quality 3").
The PS "quality" setting goes up to 12; why do you think, that 3 is anything useful? You have simply thrown away a large part of the image, not pixel-wise but quality-wise. The minimum quality setting should be 7, but if you want to get something better, then 10 (the file size will be 1.9 MB).
Btw, do not use 1/3 stop ISOs with raw data.