Obviously the smaller the file size the better but is there a maximum file size for flash banners?
What are the most effective ways in which to reduce flash file sizes?
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The size of your flash file should be set to the conditions of your website and users. The less you have on your site the more leeway you have with the size. Also, the more bandwidth your users have the more leeway you have.
There is no precise size you should make a banner, in fact placement is the most important. I would suggest doing what you have proposed and make the file size as small as possible.
To make you file size smaller I would make sure your code is light weight and the number of colors and animations are kept to a decent level. However, I'm sure there are a slew of tutorials online about how to get your file size down.
As far as a max size, just keep in mind the conditions you are working with.
Max file size is more of less irrelevant. You are really limited by the how long you set your timeout for your page, the speed of your server, and most importantly the speed of the users internet connection.
Your goal needs to be to get the file as small as possible without losing noticeable quality. Remember, most users like fast loading web pages more and will leave sites that take a long time.
I would suggest testing your site with a tool like http://www.webpagetest.org/. If you get load times longer than 10 seconds then you should work on making it smaller.
It's important to mention the strength of alternatives. I actually encourage my clients to avoid Flash altogether. (disclaimer, I'm an Adobe Certified Flash Dev, so I do understand it well) It's not that the file size is that much bigger (though that's often true) but the problem with Flash is compatibility with the myriad of browsers out there...and the fact that it's not a native solution on the web. If you're using it for nav as well, you potentially have major SEO issues to contend with.
Recently, I updated Firefox and it threw a big warning about Flash being a security risk and to update immediately. I selected the update link, and it failed. I started to download it, and it told me that it required additional software...I said forget it. Now, being a power user I know how to fix the problem, but what about those who don't? How about the Mac purists who are hearing the head guru say that Flash is the work of the devil?
Just like .pdf is often abused by those who are print-obsessed, flash is often done for little or no reason at all. Remember, you not only have to load that additional file, but you have to instantiate the viewer in the browser, provided they have it installed at all. If your site is being viewed on an iPhone or iPad, you just destroyed the user experience and need to develop an alternative. Was it really worth it?
There's no right answer here...it's all dependent on your particular situation. Good luck!