The risky business of financial sector reform

Australian banks' disproportionate exposure to home loans is a source of weakness for the sector, but any changes to the system must account for the trade-offs between risk, competitiveness and efficiency.

One of the key insights provided by this week’s tabling of the Financial System Inquiry’s interim report is how inter-connected the system is and therefore how sensitive it is to any change.

Nowhere was that more evident than in the related discussions about competition within the system and the vexed issue of banks -- four of them in our system -- that are 'too big to fail'.

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