Financial and banking innovations and the global financial crisis

This paper gives an overview of the existing (yet insufficient) theories and facts regarding financial and banking innovation and how they triggered the Global financial crisis. Even though creativity and innovation are most appreciated elsewhere in business sectors, they seem to be an association to the Global financial crisis in the financial and banking sector. Financial innovation is not a new phenomenon. Ever since 1960s, the participants in the financial markets have been facing drastic changes in the economic environment and constant changes of the market conditions. Due to this fact, they were stimulated to develop new innovative products and services, in order for them to survive. However, as banks today face many challenges (rising customer expectations, international competition on the local markets, IT modernization, rapidly changing technology and customer environment etc.), they are discovering the need to digitalize and modernize banking, as well as innovate. Thus, it is logical that financial and banking innovations show drastic growth in recent years, since they represent an answer to all the changes in the environment that banks face. Even though they are often presented as main triggers to the Global crisis, still, they remain a very important key ingredient for a healthy and developing financial system.