For more than a quarter of a century, Australia's big four banks gobbled up almost everything in their path.

From pure savings and loan institutions, they have plunged headlong into insurance, superannuation, broking and financial advice.

That's all coming to an end. Plagued by scandals, and under pressure to bolster their reserves and improve their resilience, it appears the great expansion phase is over as each of the big four rush to jettison their ancillary businesses.

The Commonwealth Bank's long-expected decision, announced this morning, to sell its life insurance business to Hong Kong group AIA for $3.8 billion, was accompanied by a three line statement that it would conduct a "strategic review" on the future of its wealth management arm, Colonial First State Global Asset Management.

That should yield billions more, which may come in handy if it faces massive fines from the money laundering scandal.

It bought the business — a merger of the old Bank of NSW and Colonial — in 2000, a purchase that helped turbocharge its earnings during a period when National Australia Bank snapped up MLC and Westpac bought into BT.

Now ANZ is looking to chop off its wealth management arm for $4 billion, Westpac has its stake in BT up for grabs — along with its funds management arm Hastings, while NAB has its MLC unit under the microscope.

Even the insurers are slimming down, with Suncorp and AMP looking to offload life insurance operations.

Murray's financial inquiry sparks rush for extra cash

There are two obvious reasons behind the banks' rush for the exits. The first is the potential for embarrassing publicity in the scandal-prone industries. The second is that the returns simply are no longer there.

Five years ago, life insurance was delivering a return on assets of around 15 per cent. That's now dropped below 10 per cent, with tougher regulations and new technology squeezing margins.

But it is the flow through from David Murray's 2014 Financial System Inquiry that triggered the banks' indigestion.

His insistence that our banks become "unquestionably strong" has prompted the Australian Prudential Regulatory Authority — the banking regulator — to impose much bigger capital buffers on the banks, to cushion them from the effects of another financial crisis.

That means they need to hold more cash — and CBA is the bank furthest behind in that quest. UBS banking analyst Jonathan Mott calculated in July that CBA had the biggest shortfall of about $4.2 billion.

Ironically, the greatest threat to Australian banks, and hence the financial system and the broader economy, is their exposure to domestic real estate.

Mortgages already account for about 60 per cent of their loan books, an extraordinary concentration by global standards.

Jettisoning the wealth management and insurance businesses will remove a further layer of diversification from their earnings profile.

The regulatory demands upon the banks are unlikely to diminish any time soon. APRA is expected to further lift risk weightings on mortgages by the end of this year, adding to pressures for our financiers to trim their operations.