Advanced Search
MyIDEAS: Login to save this paper or follow this series

Technological change, financial innovation, and diffusion in banking

Contents:

Author Info

  • W. Scott Frame
  • Lawrence J. White

Abstract

This paper discusses the technological change and financial innovation that commercial banking has experienced during the past twenty-five years. The paper first describes the role of the financial system in economies and how technological change and financial innovation can improve social welfare. We then survey the literature relating to several specific financial innovations, which we define as new products or services, production processes, or organizational forms. We find that the past quarter century has been a period of substantial change in terms of banking products, services, and production technologies. Moreover, while much effort has been devoted to understanding the characteristics of users and adopters of financial innovations and the attendant welfare implications, we still know little about how and why financial innovations are initially developed.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.frbatlanta.org/filelegacydocs/wp0910.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2009-10.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:fip:fedawp:2009-10

Contact details of provider:
Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309
Phone: 404-521-8500
Email:
Web page: http://www.frbatlanta.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Technological innovations;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. DeYoung, Robert & Lang, William W. & Nolle, Daniel L., 2007. "How the Internet affects output and performance at community banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1033-1060, April.
  2. Gautam Gowrisankaran & Daniel A. Ackerberg, 2003. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," Working Papers 03-06, NET Institute, revised Sep 2003.
  3. Robert C. Merton, 1992. "Financial Innovation And Economic Performance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 12-22.
  4. Allen N. Berger & W. Scott Frame & Nathan H. Miller, 2002. "Credit scoring and the availability, price, and risk of small business credit," Finance and Economics Discussion Series 2002-26, Board of Governors of the Federal Reserve System (U.S.).
  5. Dennis Capozza & Thomas Thomson, 2006. "Subprime Transitions: Lingering or Malingering in Default?," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 241-258, November.
  6. W. Scott Frame & Lawrence White, 2002. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Working Papers 02-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. Stanley Sienkiewicz, 2007. "Prepaid cards: vulnerable to money laundering?," Payment Cards Center Discussion Paper 07-02, Federal Reserve Bank of Philadelphia.
  8. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  9. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
  10. Karen Furst & William Lang & Daniel Nolle, 2002. "Internet Banking," Journal of Financial Services Research, Springer, vol. 22(1), pages 95-117, August.
  11. Fumiko Hayashi & Elizabeth Klee, 2002. "Technology adoption and consumer payments : evidence from survey data," Payments System Research Working Paper PSR WP 02-01, Federal Reserve Bank of Kansas City.
  12. Krahnen, Jan Pieter & Wilde, Christian, 2006. "Risk Transfer with CDOs and Systemic Risk in Banking," CEPR Discussion Papers 5618, C.E.P.R. Discussion Papers.
  13. Gregory Elliehausen & Michael E. Staten, 2004. "Regulation of Subprime Mortgage Products: An Analysis of North Carolina's Predatory Lending Law," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 411-433, December.
  14. Francis A. Longstaff & Arvind Rajan, 2008. "An Empirical Analysis of the Pricing of Collateralized Debt Obligations," Journal of Finance, American Finance Association, vol. 63(2), pages 529-563, 04.
  15. Richard J. Sullivan, 2000. "How has the adoption of Internet banking affected performance and risk in banks?," Financial Industry Perspectives, Federal Reserve Bank of Kansas City, issue Dec, pages 1-16.
  16. Higgins, Eric J. & Mason, Joseph R., 2004. "What is the value of recourse to asset-backed securities? A clinical study of credit card banks," Journal of Banking & Finance, Elsevier, vol. 28(4), pages 875-899, April.
  17. Paul S. Calem & Kevin Gillen & Susan Wachter, . "The Neighborhood Distribution of Subprime Mortgage Lending," Zell/Lurie Center Working Papers 404, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  18. Danis, Michelle A. & Pennington-Cross, Anthony, 2008. "The delinquency of subprime mortgages," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 67-90.
  19. Josh Lerner, 2000. "Where Does State Street Lead? A First Look at Finance Patents, 1971-2000," NBER Working Papers 7918, National Bureau of Economic Research, Inc.
  20. Goderis, B.V.G. & Marsh, I. & Vall Castello, J. & Wagner, W.B., 2006. "Bank Behavior with Access to Credit Risk Transfer Markets," Discussion Paper 2006-100, Tilburg University, Center for Economic Research.
  21. Robert C. Merton, 1995. "Financial Innovation and the Management and Regulation of Financial Institutions," NBER Working Papers 5096, National Bureau of Economic Research, Inc.
  22. Anthony Pennington-Cross, 2004. "The value of foreclosed property," Working Papers 2004-022, Federal Reserve Bank of St. Louis.
  23. Joanna Stavins & Paul Bauer, 1999. "The Effect of Pricing on Demand and Revenue in Federal Reserve ACH Payment Processing," Journal of Financial Services Research, Springer, vol. 16(1), pages 27-45, September.
  24. Pennathur, Anita K., 2001. ""Clicks and bricks":: e-Risk Management for banks in the age of the Internet," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2103-2123, November.
  25. Lerner, Josh, 2006. "The new new financial thing: The origins of financial innovations," Journal of Financial Economics, Elsevier, vol. 79(2), pages 223-255, February.
  26. Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 149-172, 02.
  27. Keith D. Harvey & Peter J. Nigro, 2003. "How Do Predatory Lending Laws Influence Mortgage Lending in Urban Areas? A Tale of Two Cities," Journal of Real Estate Research, American Real Estate Society, vol. 25(4), pages 479-508.
  28. Joseph Nichols & Anthony Pennington-Cross & Anthony Yezer, 2004. "Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 197-219, November.
  29. Nicole Jonker, 2005. "Payment Instruments as Perceived by Consumers - a Public Survey," DNB Working Papers 053, Netherlands Central Bank, Research Department.
  30. Ho, Giang & Pennington-Cross, Anthony, 2006. "The impact of local predatory lending laws on the flow of subprime credit," Journal of Urban Economics, Elsevier, vol. 60(2), pages 210-228, September.
  31. Robert DeYoung, 2001. "The financial performance of pure play Internet banks," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 60-78.
  32. Jalal Akhavein & W. Scott Frame & Lawrence J. White, 2001. "The Diffusion of Financial Innovations: An Examination of The Adoption of Small Business Credit Scoring by Large Banking Organizations," Center for Financial Institutions Working Papers 01-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
  33. Javier Delgado & Ignacio Hernando & María J. Nieto, 2007. "Do European Primarily Internet Banks Show Scale and Experience Efficiencies?," European Financial Management, European Financial Management Association, vol. 13(4), pages 643-671.
  34. Arnoud W A Boot & Anjan V Thakor, 1992. "Security Design," CEPR Financial Markets Paper 0020, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  35. DeYoung, Robert & Glennon, Dennis & Nigro, Peter, 2008. "Borrower-lender distance, credit scoring, and loan performance: Evidence from informational-opaque small business borrowers," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 113-143, January.
  36. Karen Furst & William Lang & Daniel Nolle, 2002. "Internet Banking," Journal of Financial Services Research, Springer, vol. 27(6), pages 251-251, August.
  37. Anthony Pennington-Cross & Giang Ho, 2006. "The termination of subprime hybrid and fixed rate mortgages," Working Papers 2006-042, Federal Reserve Bank of St. Louis.
  38. Dennis Capozza & Thomas Thomson, 2004. "Optimal Stopping and Losses on Subprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 115-131, November.
  39. Brian Mantel & Timothy McHugh, 2001. "Competition and innovation in the consumer e-payments market? considering the demand, supply, and public policy issues," Occasional Paper; Emerging Payments EPS-2001-4, Federal Reserve Bank of Chicago.
  40. Paul W. Bauer & Gary D. Ferrier, 1996. "Scale economies, cost efficiencies, and technological change in Federal Reserve payments processing," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 1004-1044.
  41. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
  42. Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T. Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems," IMF Working Papers 01/88, International Monetary Fund.
  43. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  44. Joyce M. Manchester & James M. Poterba, 1989. "Second Mortgages and Household Saving," NBER Working Papers 2853, National Bureau of Economic Research, Inc.
  45. Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
  46. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2004. "Debt maturity, risk, and asymmetric information," Working Paper 2004-32, Federal Reserve Bank of Atlanta.
  47. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
  48. Kristopher S. Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul S. Willen, 2009. "Making sense of the subprime crisis," Public Policy Discussion Paper 09-1, Federal Reserve Bank of Boston.
  49. Dell''Ariccia, Giovanni & Igan, Deniz & Laeven, Luc, 2008. "Credit Booms and Lending Standards: Evidence From The Subprime Mortgage Market," CEPR Discussion Papers 6683, C.E.P.R. Discussion Papers.
  50. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
  51. Peter Tufano, 2003. "Financial Innovation," Levine's Working Paper Archive 618897000000000651, David K. Levine.
  52. Keith D. Harvey & Peter J. Nigro, 2004. "Do Predatory Lending Laws Influence Mortgage Lending? An Analysis of the North Carolina Predatory Lending Law," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 435-456, December.
  53. Douglas Lucas & Laurie Goodman & Frank Fabozzi, 2007. "Collateralized Debt Obligations and Credit Risk Transfer," Yale School of Management Working Papers amz2503, Yale School of Management.
  54. W. Scott Frame & Michael Padhi & Lynn Woosley, 2001. "The effect of credit scoring on small business lending in low- and moderate-income areas," Working Paper 2001-6, Federal Reserve Bank of Atlanta.
  55. Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
  56. Robert DeYoung, 2005. "The Performance of Internet-Based Business Models: Evidence from the Banking Industry," The Journal of Business, University of Chicago Press, vol. 78(3), pages 893-948, May.
  57. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
  58. Berger, Allen N, 2003. " The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-76, April.
  59. Jeremy Berkowitz, 1999. "A coherent framework for stress-testing," Finance and Economics Discussion Series 1999-29, Board of Governors of the Federal Reserve System (U.S.).
  60. Borzekowski, Ron & Kiser, Elizabeth K., 2008. "The choice at the checkout: Quantifying demand across payment instruments," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 889-902, July.
  61. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  62. Michelle A. Danis & Anthony Pennington-Cross, 2005. "A dynamic look at subprime loan performance," Working Papers 2005-029, Federal Reserve Bank of St. Louis.
  63. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
  64. Lockwood, Larry J. & Rutherford, Ronald C. & Herrera, Martin J., 1996. "Wealth effects of asset securitization," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 151-164, January.
  65. Thomas, Hugh, 2001. "Effects of Asset Securitization on Seller Claimants," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 306-330, July.
  66. Gary Gorton & Nicholas S. Souleles, 2005. "Special purpose vehicles and securitization," Working Papers 05-21, Federal Reserve Bank of Philadelphia.
  67. Thomas, Hugh, 1999. "A preliminary look at gains from asset securitization," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 321-333, August.
  68. Peter DeMarzo & Darrell Duffie, 1999. "A Liquidity-Based Model of Security Design," Econometrica, Econometric Society, vol. 67(1), pages 65-100, January.
  69. Rocco Ciciretti & Iftekhar Hasan & Cristiano Zazzara, 2009. "Do Internet Activities Add Value? Evidence from the Traditional Banks," Journal of Financial Services Research, Springer, vol. 35(1), pages 81-98, February.
  70. Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, 06.
  71. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
  72. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Using Market Information for Banking System Risk Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
  73. Paul W. Bauer & Diana Hancock, 1995. "Scale economies and technological change in Federal Reserve ACH payment processing," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 14-29.
  74. Merton H. Miller, 1992. "Financial Innovation: Achievements And Prospects," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(4), pages 4-11.
  75. Giang Ho & Anthony Pennington-Cross, 2006. "Loan servicer heterogeneity and the termination of subprime mortgages," Working Papers 2006-024, Federal Reserve Bank of St. Louis.
  76. Hernando, Ignacio & Nieto, Maria J., 2007. "Is the Internet delivery channel changing banks' performance? The case of Spanish banks," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1083-1099, April.
  77. Pennington-Cross, Anthony, 2003. "Credit History and the Performance of Prime and Nonprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 27(3), pages 279-301, November.
  78. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2007. "Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information," Working Paper 2006-29, Federal Reserve Bank of Atlanta.
  79. Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
  80. Kaniovski, Y.M. & Pflug, G.Ch., 2007. "Risk assessment for credit portfolios: A coupled Markov chain model," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2303-2323, August.
  81. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards," IMF Working Papers 08/106, International Monetary Fund.
  82. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  83. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  84. Julia S. Cheney & Sherrie L.W. Rhine, 2006. "Prepaid cards: an important innovation in financial services," Payment Cards Center Discussion Paper 06-07, Federal Reserve Bank of Philadelphia.
  85. Michael S. Gibson, 2004. "Understanding the risk of synthetic CDOs," Finance and Economics Discussion Series 2004-36, Board of Governors of the Federal Reserve System (U.S.).
  86. Allen N. Berger & Adrian M. Cowan & W. Scott Frame, 2009. "The surprising use of credit scoring in small business lending by community banks and the attendant effects on credit availability and risk," Working Paper 2009-09, Federal Reserve Bank of Atlanta.
  87. Tufano, Peter, 2003. "Financial innovation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 6, pages 307-335 Elsevier.
  88. William P. Alexander & Scott D. Grimshaw & Grant R. McQueen & Barrett A. Slade, 2002. "Some Loans Are More Equal than Others: Third-Party Originations and Defaults in the Subprime Mortgage Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(4), pages 667-697.
  89. Brian Mantel, 2000. "Why do consumers pay bills electronically? an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 32-48.
  90. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  91. Ben-Horim, Moshe & Silber, William L., 1977. "Financial innovation : A linear programming approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 277-296, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Batiz-Lazo, Bernardo & Karlsson, Tobias & Thodenius, Björn, 2009. "Building Bankomat: The development of on-line, real-time systems in British and Swedish savings banks, c.1965-1985," MPRA Paper 27084, University Library of Munich, Germany.
  2. Thodenius, Björn & Batiz-Lazo, Bernardo & Karlsson, Tobias, 2010. "The history of the Swedish ATM - Sparfrämjandet and Metior," MPRA Paper 27083, University Library of Munich, Germany.
  3. Joanna B³ach, 2011. "Financial Innovations and Their Role in the Modern Financial System – Identification and Systematization of the Problem," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 7(3), pages 13-26, November.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:2009-10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.