Financial Innovation in Retail and Corporate Banking

Financial Innovation in Retail and Corporate Banking

New Horizons in Money and Finance series

Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt

This valuable book discusses in detail, through a blend of theory and empirical research, the processes of innovation and the diffusion of new financial instruments.

Chapter 2: Is Financial Innovation Still a Relevant Issue?

Luisa Anderloni and Paola Bongini

Subjects: business and management, corporate governance, economics and finance, corporate governance, financial economics and regulation, money and banking


2. Is financial innovation still a relevant issue? Luisa Anderloni and Paola Bongini INTRODUCTION 1 Financial innovation has regularly been regarded as one of the major drivers for the radical changes underwent by international and domestic financial markets in particular during the 1980s and 1990s. The approach adopted in the literature on financial innovation has typically focused on: (i) the concept of innovation, its features and forms; (ii) the determinants of financial innovation; and (iii) the effects generated by innovation. The term ‘financial innovation’ has a broad range of both implicit and explicit definitions. Roger (1995, p. 11) defines ‘innovation’ as ‘an idea, practice, or object that is perceived as new by an individual or other unit of adoption. It matters little, so far as human behavior is concerned, whether or not an idea is objectively new as measured by the lapse of time since its first use or discovery. The perceived newness of the idea for the individuals determines his or her reaction to it. If the idea seems new to the individual, it is an innovation’. Specifically with regard to the financial sector, Silber (1975, p. 1), in outlining the scope of his work, states: This book is devoted to studies of innovation in the financial sector. It focuses on the innovation of new financial instruments, institutions, markets, and practices. Innovation means change. It usually implies progress as well, although this need not always be the case. While most economists have reserved the term...

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