Financial innovation: Economic growth versus instability in bank-based versus financial market driven economies ‡

Abstract

Abstract A fundamental feature of recent financial innovations is their focus on augmenting marketability. We point at the potential dark side of marketability. The paper casts its analysis of the pros and cons of financial innovation within the financial development and economic growth debate. The innovations are largely spurred by developments in information technology which may have caused excessive 'changeability' in the economy. We also ask the question whether the proliferation of financial innovations might impact bank-based versus financial market driven economies differently. We argue that the enhanced marketability of bank assets has implications for stability