Is the Australian Financial Sector Too Big?

The Australian financial sector has grown rapidly in recent decades and now looks big by global standards. The paper suggests that most of the growth has been driven by outward shifts in the demand for financial services driven by household preferences, by the availability of a wider range of financial tools, and by active government policy. Margins for many services have fallen sharply despite the increase in demand and most notably in areas where better technology has been brought to bear. Labour costs have risen but do not appear to have been a major driver.