Trends in Financial Innovation and their Welfare Impact: an Overview

There is evidence that financial innovations are sometimes undertaken to create complexity and exploit the purchaser. Thus financial innovation does have a dark side. As far as the financial crisis is concerned, securitisation and subprime mortgages may have exacerbated the problem. However, financial crises have occurred in a very wide range of circumstances, where these and other innovations were not important. There is evidence that financial liberalisation has been more of a problem. There are many financial innovations that have had a significant positive effect including venture capital and leveraged buyouts and innovations to fund environmental and health improvements.