For example, an excessively large financial industry can lead to a migration of talented individuals away from productive sectors.5 Alternatively, as the financial sector grows too large, financial intermediaries can start taking on excessive risk, and this behaviour can expose the economy to large macroeconomic contractions.6 In other words, while we know that we need a well-functioning financial sector, we have to pay attention to its evolution.
Because banks are more familiar with the latter, the melding of the two client bases may create new operational challenges for the banks’ frontline staff. Change in agent behavior also affects monetary policy. Mehrotra and Yetman (2014) argue that when more clients are able to smooth consumption, authorities have more monetary policy space to concentrate on fighting inflation.