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Financial Innovation in Banking

In: Bank Risk, Governance and Regulation

Author

Listed:
  • Francesca Arnaboldi
  • Bruno Rossignoli

Abstract

Innovation has been a core topic for scholars, because of its important contribution to economic growth and to the stability of financial systems (Levine, 1997; IMF, 2006; Lerner and Tufano, 2011). New financial products, such as the securitisation of assets, were believed to have tremendous potential for the diversification and efficient management of risk (Merton, 1992; Mendoza et al., 2009; Trichet, 2009). The financial crisis that started in 2007 changed those beliefs, as excessive risk-taking in some specialized innovating products brought down the financial system and produced the deepest and most prolonged economic crisis since the Great Depression. Recent studies now blame excessive growth of the financial economy as detrimental to the growth of the real economy (Levine, 2005; Rajan, 2005; Piazza, 2010; Shin, 2010; Johnson and Kwak, 2012). Innovation is a double-edged sword: the right kind of innovation and favourable conditions that may spur banks to invest in new technologies would help the financial system fulfil its functions and, as a consequence, deliver growth; but too much innovation or innovation that is not properly used, can have serious consequences for the overall economy (Stiglitz, 2010; Beck et al., 2012).

Suggested Citation

  • Francesca Arnaboldi & Bruno Rossignoli, 2015. "Financial Innovation in Banking," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Elena Beccalli & Federica Poli (ed.), Bank Risk, Governance and Regulation, chapter 5, pages 127-162, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-53094-3_5
    DOI: 10.1057/9781137530943_5
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    Citations

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    Cited by:

    1. Lee, Chi-Chuan & Li, Xinrui & Yu, Chin-Hsien & Zhao, Jinsong, 2021. "Does fintech innovation improve bank efficiency? Evidence from China’s banking industry," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 468-483.
    2. Mustansar, Talreja, 2023. "Financial innovation, technological improvement and bank’ profitability," OSF Preprints 8wy95, Center for Open Science.
    3. Masudul Hasan Adil & Neeraj Hatekar & Pravakar Sahoo, 2020. "The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(1), pages 28-61, February.
    4. Dao H. Duong & Fredric W. Swierczek, 2019. "The Impact of Top Management Team and Organizational Culture on Product/Service and Process Innovation in Vietnamese Banks," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(2), pages 1-3.
    5. Ghazi Zouari & Imen Abdelmalek, 2020. "Financial Innovation, Risk Management, And Bank Performance," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 9(1), pages 77-100.

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