The cost of financial intermediation in Australia

This article finds a negative trend in the unit cost of financial intermediation in Australia. The result is remarkable given the seemingly low competition in the Australian banking system and contrasts the relatively constant costs identified for the United States. However, the negative trend is related to falling interest rates highlighting the fact that Australian loans are generally more exposed to interest rate changes than US loans. We also compare the cost of financial intermediation across five types of financial institutions in Australia: shareholder-owned deposit-taking institutions, customer-owned deposit-taking institutions, non-deposit-taking lending institutions, deposit-taking and non-deposit-taking FinTechs. Our analysis suggests that the costs of financial intermediation could decrease through improved operational efficiency and profits passed on to consumers instead of shareholders. JEL Classification: G21, G23, G32