Abstract
In the first part of the paper, we try to clearly identify financial innovations and draw a general framework. Despite the relevance of financial innovations, a unique definition is difficult to find. We then provide empirical evidence of such innovations on a sample of Italian and UK listed banks over the period 2005–2007 using financial account data. First, the absence of any mention of a specific organizational unit in charge of research and development (R&D) is highlighted. However, the existence of a research and developmental function involving different organizational units cannot be excluded. Second, innovation seems to be mainly concentrated in the product area, both in Italy and in the UK. This could be accounted for by the difference in the “life cycles” of innovations and by the different operational conditions of banks in both systems. Third, larger banks seem more innovative, both in Italy and in the UK. No clear relation between innovation and cost reduction/revenue increase seems to exist, at least in Italy. In the light of the above considerations, policy implication comes to light on whether the choice of not establishing a specific organizational unit dedicated to R&D could turn out effective in the medium-long term.
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Notes
The SEPA is aimed at expanding the European integration process to include retail payments in Euro performed other than in cash, in view of promoting efficiency and competition within the area. In this respect, all retail payments in Euro are considered as domestic, thus eliminating the distinction between national and cross-border payments within the Euro area (Directive 2007/64/EC). This is one case of innovation, because the new system is generally adopted by the financial firms, thus reducing the costs and risks involved in cross-border payments and turning, in time, into a new standard.
Paine, Webber, Jackson & Curtis, Inc., v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 564 F.Supp. 1358 (Del. 1983).
Signature developed an asset management system known as Hub and Spokes, where a centrally managed fund (hub) is distributed in multiple, institutionally different forms (spokes). Signature patented the system, which was used by State Street without authorization. See Heaton (2000) for further details.
According to estimates, the optimal proportion should be 85% for existing processes and 15% in favor of new projects (Romano 2005). The actual expense allocation according to these proportions is widely varied and changes with time. For example, in 2005 the banking system only allocated 8% of the expense to development; in 2007, data referring to the main 20 banking groups point out to a 27% share (CIPA, ABI 2007).
Please note that, as mentioned in the opening of Sect. 3, the operations area includes credit, finance, collections and payments.
Banca Carige, Banca CR Firenze, Banca Finnat, Banca Generali, Banca Ifis, Banca Intermobiliare, Banca Italease, Banca Monte dei Paschi di Siena, Banca Popolare dell’Etruria e del Lazio, Banca Popolare di Intra, Banca Popolare di Milano, Banca Popolare di Spoleto, Banca Profilo, Banco di Desio e della Brianza, Banco di Sardegna, Banco Popolare, Credito Artigiano, Credito Bergamasco, Credito Emiliano, Credito Valtellinese, Intesa SanPaolo, Mediobanca, Meliorbanca, UBI Banca, Unicredit.
These include Credito Artigiano and Credito Bergamasco, members of Credito Valtellinese and of the Banco Popolare group, respectively.
The following were delisted: Banca Intesa, San Paolo IMI, Banca Fideuram, Banche Popolari Unite, Banca Lombarda e Piemontese, Capitalia, Banca Popolare Verona e Novara, Banca Popolare Italiana. The three new listed banks born from the aggregations include Intesa San Paolo, UBI Banca, Banco Popolare. The delisting resulting from the aggregations also concerned Banca Antonveneta and Banca Nazionale del Lavoro. These banks were excluded from the analysis because they were acquired by foreign banks, namely Banca Antonveneta by ABM Amro and Banca Nazionale del Lavoro by BNP Paribas.
For the entire 2005–2007 period, the innovations of Banca Intesa, San Paolo IMI and Banca Fideuram were conventionally attributed to Intesa SanPaolo; the innovations of Banche Popolari Unite and Banca Lombarda e Piemontese to UBI Banca; the innovations of Capitalia to UniCredit; the innovations of Banca Popolare Verona e Novara and Banca Popolare Italiana to Banco Popolare.
See, by way of example, the financial statements of Fiat Group, Enel, and Recordati.
Interestingly, six banks use the specific phrasing “research and development activities” as requested by the rules on financial statements. The other banks use different phrasings, which promptly draw the attention to the contents: ICT and R&D activities; development and organization activities; products and R&D activities; sector-specific information, business policies, and R&D activities; R&D activities and organizational measures; marketing, research, and development of products and services.
Alliance & Leicester, Barclays, Bradford & Bingley, European Islamic Investment Bank (listed from 2006), HBOS, HSBC Hldgs, Lloyds TSB Group, Northern Rock, Royal Bank of Scotland Group Plc, Standard Chartered.
The x-axis shows the number of banks under study. For each, the position in terms of total assets, ROA and cost-to-income variation is shown on the y-axis. In particular, the top ranking positions for the total assets are covered by larger banks (calculated as an average of the total assets in the 3-year period). Similarly, for the ROA variation, the top positions are covered by the banks that showed the greatest percent increase of the ROA over the 3 years. Unlike these two situations, the ranking of the percent variation of the cost-to-income ratio was organized in increasing order, starting from the banks that obtained the greatest negative variation of the index. Finally, the innovation ranking provides for the top positions to be taken by banks that innovated in a higher number of areas. For the sake of comprehensiveness, the Appendix contains the charts referring to the situation of banks in both countries in each individual year of the period under consideration.
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Rossignoli, B., Arnaboldi, F. Financial innovation: theoretical issues and empirical evidence in Italy and in the UK. Int Rev Econ 56, 275–301 (2009). https://doi.org/10.1007/s12232-009-0078-5
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DOI: https://doi.org/10.1007/s12232-009-0078-5