Financial Innovations, Marketability and Stability in Banking

HANDBOOK ON BANKING AND GOVERNANCE, Jim Bath, Chen Lin, and Class Wihlborg, eds., 2011

Amsterdam Center for Law & Economics Working Paper No. 2011-06

25 Pages Posted: 8 Apr 2011

See all articles by Arnoud W. A. Boot

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Matej Marinc

University of Ljubljana - Faculty of Economics

Date Written: February 20, 2011

Abstract

A fundamental feature of more recent financial innovations is their focus on augmenting marketability. We point at the potential dark side of marketability. Marketability has possibly led to an excessive proliferation of transaction-oriented banking (trading and financial market activities). The 2007-2009 financial crisis appears to have countered this trend, and possibly reemphasized the importance of relationship banking. In order to focus on these issues in a rigorous way, we will evaluate the key insights from the relationship banking literature, including the potential complementarities and conflicts of interest between intermediated relationship banking activities and financial market (underwriting, securitization, etc.) activities. From here we will point at institutional and regulatory changes that might be needed to improve the stability of the financial sector. One could say that the institutional structure (including regulation) has not kept up with the enhanced marketability and ‘changeability’ of the industry.

Keywords: financial innovation, financial market, relationship banking

Suggested Citation

Boot, Arnoud W. A. and Marinc, Matej, Financial Innovations, Marketability and Stability in Banking (February 20, 2011). HANDBOOK ON BANKING AND GOVERNANCE, Jim Bath, Chen Lin, and Class Wihlborg, eds., 2011, Amsterdam Center for Law & Economics Working Paper No. 2011-06, Available at SSRN: https://ssrn.com/abstract=1802551

Arnoud W. A. Boot (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4162 (Phone)
+31 20 525 5318 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Matej Marinc

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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