Innovations In The Financial Institutions

INNOVATIONS IN THE FINANCIAL INSTITUTIONS

Innovations in the Financial Institutions

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Innovations in the Financial Institutions

Innovation in financial institutions and transactions is a process of change that assumes

different forms in the financial system. The process involves the transformation of the financial

products, financial intermediaries, and markets. The major purpose of the innovations includes

reduction of running costs, minimization of risks and improvement of products and services.

Innovative forms of financial institutions and transactions are characterized by risk-shifting

innovation, product innovation, and process innovation.

The risk-shifting innovations establish a distinct separation or combination of diverse

individual instruments to attain new instruments with different risk features

. The innovation also

entails the reassembly of different combinations of individual instruments such as interest rate

risks and credit risk. Under the risk-shifting innovations, there exist two main categories, namely

instrument innovations and post-contract innovations. Under the instrument innovations, an

established instrument is designed to attain given features for projected benefits to an

organization

. The post-contract innovations ensure that the risk features are changed after the

original instrument is utilized. The instruments are defined as the best way to predict the

probability of making a loss. The advancement in technology facilitates the risk-shifting

innovations that revolutionize the methods used in risk management

. Financial institutions

implement various approaches to measuring and averting financial risks in the institutions and

the financial system.

Luisa, Anderloni, David T. Llewellyn, and Reinhard H. Schmidt. 2009. Financial innovation in retail and

corporate banking. (Cheltenham, UK: Edward Elgar).

Joanna Błach. "Financial innovations and their role in the modern financial system-identification and

systematization of the problem." e-Finanse: Financial Internet Quarterly 7, no. 3 (2011): 13

Adolfo Rodríguez Vargas. "Assessing the contribution of financial innovations to the production of implicit

services of financial intermediation in Costa Rica." Session 1: An overview of challenges related to measuring

financial innovations 26 (2008): 445.

The product innovation involves changes in new financial instruments, techniques,

contracts, and markets

. The improvements made either reveal different instruments that possess

diverse characteristics separately or as a combination. The product innovations also include the

introduction of new products and services meant to meet the dynamic market needs.

Transformations of the products and services facilitate intermediaries to remain competitive by

providing a customer-focused form of change

. The innovations also help in offering solutions to

present and future needs of the customers. Product innovation also involves the implementation

of techniques meant to increase the market share, promote market extension and diversification

of products and services offered. Examples of product innovation include adjustable-rate

mortgages, debit cards, variable rate bonds ATMs, and online banking

The process innovation entails the introduction of new production processes that facilitate

the provision of innovative or existing products and services. The changes made in the initial

processes are connected with various improvements in the procedures in the financial system.

Examples of improved processes include the introduction of new means of processing

transactions, pricing, distribution of securities and handling electronic transactions

. Financial

institutions further conduct process innovations to boost the effectiveness of the production

process. The steps taken in improving the processes are directly connected to the present

technological changes in the financial system. The innovations also aid in synchronizing related

procedures to improve the customers’ experience. The financial institutions further seek to

improve other processes such as asset valuation, transaction payments, and associated practices.

Luisa, Anderloni, David T. Llewellyn, and Reinhard H. Schmidt. 2009. Financial innovation in retail and

corporate banking. (Cheltenham, UK: Edward Elgar).

Joanna Błach. "Financial innovations and their role in the modern financial system-identification and

systematization of the problem." e-Finanse: Financial Internet Quarterly 7, no. 3 (2011): 13

Cristian Ionescu. "Financial Instability and Financial Innovations." Economy Transdisciplinarity Cognition 15, no.

2 (2012): 30.

Luisa, Anderloni, David T. Llewellyn, and Reinhard H. Schmidt. 2009. Financial innovation in retail and

corporate banking. (Cheltenham, UK: Edward Elgar).

The financial system and institutions exhibit high levels of risk-shifting innovation,

product innovation, and process innovation. The innovations are characterized according to the

categories above that show their diversity. In spite of the differences in the transformations, the

innovations made are crucial to the survival of the financial institutions. The risk-shifting

innovation helps the organization in averting risks using separate or a combination of

instruments in the financial system. The product innovation enables institutions to introduce new

products or develop the existing products to boost customer experience and remain competitive

in the market. The process innovation improves the efficiency of procedures carried out in the

organizations. The financial innovations accrue numerous benefits to the firms that implement

the different forms available.

Bibliography

Anderloni, Luisa, David T. Llewellyn, and Reinhard H. Schmidt. 2009. Financial innovation in

retail and corporate banking. Cheltenham, UK: Edward Elgar.

Błach, Joanna. "Financial innovations and their role in the modern financial system-identification

and systematization of the problem." e-Finanse: Financial Internet Quarterly 7, no. 3

(2011): 13-26.

Ionescu, Cristian. "Financial Instability and Financial Innovations." Economy Transdisciplinarity

Cognition 15, no. 2 (2012): 30.

Vargas, Adolfo Rodríguez. "Assessing the contribution of financial innovations to the production

of implicit services of financial intermediation in Costa Rica." Session 1: An overview of

challenges related to measuring financial innovations 26 (2008): 445.

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