Financial Innovation: A View from the Bank of England

Abstract

There are many candidates for consideration as financial innovations: medium-term floating rate credits, floating rate instruments, financial futures, securitisation, new hedging instruments and techniques, and so on. There is scope for argument as to which of these developments were, and which were not, truly innovatory. Several of them reflect shifts in the relative roles of the banking system and the capital market in mediating between ultimate lenders and borrowers. Inflation and its uncertainty, and the associated varying uncertainty about nominal interest rates, have played a large part here. Swaps between currencies and maturities can also be seen as a natural development of back-to-back loans and indeed acceptance credits which have been around for many years.