Table Of ContentFinancial Innovation in Retail and Corporate
Banking
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NEW HORIZONS IN MONEY AND FINANCE
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Financial Innovation in Retail and Corporate Banking
Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt
An Islamic Perspective on Governance
Zafar Iqbal and Mervyn K. Lewis
Financial Innovation
in Retail and
Corporate Banking
Edited by
Luisa Anderloni
Professor of Banking and Finance, Department of Economics,
Business and Statistics, University of Milan;
Researcher, Carefi n, Bocconi University, Milan, Italy
David T. Llewellyn
Professor of Money and Banking, Department of Economics,
Loughborough University, UK; Visiting Professor, CASS
Business School, London, UK, Vienna University of
Economics and Business Administration, Austria, and Swiss
Finance Institute, Zurich, Switzerland
Reinhard H. Schmidt
Professor of International Banking and Finance, Department
of Finance, Goethe University, Frankfurt am Main, Germany
NEW HORIZONS IN MONEY AND FINANCE
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© Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt 2009
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Contents
List of contributors vi
Acknowledgements viii
Preface Paolo Mottura ix
1 Financial innovation and the economics of banking and the
fi nancial system 1
David T. Llewellyn
2 Is fi nancial innovation still a relevant issue? 41
Luisa Anderloni and Paola Bongini
3 Microfi nance, innovations and commercialisation 63
Reinhard H. Schmidt
4 Technological innovation in banking: the shift to ATMs and
implicit pricing of network convenience 89
Santiago Carbó Valverde and David B. Humphrey
5 Financial innovation in internet banking: a comparative analysis 111
Francesca Arnaboldi and Peter Claeys
6 How do internet payments challenge the retail payment
industry? 146
David Bounie and Pierre Gazé
7 Intellectual property rights and standard setting in fi nancial
services: the case of the Single European Payments Area 170
Robert M. Hunt, Samuli Simojoki and Tuomas Takalo
8 The regulatory and market developments of covered bonds in
Europe 199
Giuseppina Chesini and Monica Tamisari
9 Credit derivatives versus loan sales: evidence from the
European banking market 224
Mascia Bedendo and Brunella Bruno
10 On the required regulatory support for credit derivative markets 250
Rym Ayadi and Patrick Behr
11 Innovation in trading activity: should stock markets be more
transparent? 282
Caterina Lucarelli, Camilla Mazzoli and Merlin Rothfeld
Index 327
v
Contributors
Luisa Anderloni Professor of Banking and Finance, Department of
Economics, Business and Statistics, University of Milan, Milan; Researcher,
Carefi n, Bocconi University, Milan, Italy.
Francesca Arnaboldi Assistant Professor, Department of Economics,
University of Milan, Milan, Italy.
Rym Ayadi Senior Research Fellow and Head of Financial Institutions
and Prudential Policy Unit, Centre for European Policy Studies (CEPS),
Brussels, Belgium.
Mascia Bedendo Assistant Professor, Department of Finance, Bocconi
University, Milan, Italy.
Patrick Behr Assistant Professor, Department of Finance, Goethe
University, Frankfurt am Main, Germany.
Paola Bongini Associate Professor, Department of Business and
Economic Sciences, University of Milan – Bicocca, Milan, Italy.
David Bounie Assistant Professor, École Nationale Supérieure des
Télécommunications, Département Sciences Économiques et Sociales,
Paris, France.
Brunella Bruno Assistant Professor, Department of Finance, Bocconi
University, Milan, Italy.
Santiago Carbó Valverde Professor of Economics, Department of
Economic Theory and History, Facultad de Ciencias Economicas y
Empresariales, Universidad de Granada, Granada, Spain.
Giuseppina Chesini Associate Professor, Department of Business Studies,
University of Verona, Verona, Italy.
Peter Claeys Grup AQR IREA, Facultat de Ciències Econòmiques I
Empresarials Universitat de Barcelona, Barcelona, Spain; Marie Curie
Intra-European Fellow.
Pierre Gazé Assistant Professor, University of Orléans, Laboratoire
d’Économie d’Orléans, Orléans, France.
vi
Contributors vii
David B. Humphrey Professor, Department of Finance, Florida State
University, Tallahassee, Florida, USA.
Robert M. Hunt Senior Economist, Research Department, Federal
Reserve Bank of Philadelphia, Philadelphia, USA.
David T. Llewellyn Professor of Money and Banking, Department of
Economics, Loughborough University, Loughborough, UK; Visiting
Professor, CASS Business School, London, UK, Vienna University of
Economics and Business Administration, Austria, and Swiss Finance
Institute, Zurich, Switzerland.
Caterina Lucarelli Associate Professor, Department of Economics,
University Politecnica delle Marche, Ancona, Italy.
Camilla Mazzoli Assistant Professor, Department of Economics,
University Politecnica delle Marche, Ancona, Italy.
Paolo Mottura Professor of Financial Markets and Institutions,
Department of Finance, Bocconi University, Milan, Italy; Carefi n,
Bocconi University, Milan, Italy.
Merlin Rothfeld On Line Trading Academy, Irvine, California, USA.
Reinhard H. Schmidt Professor of International Banking and Finance,
Department of Finance, Goethe University, Frankfurt am Main,
Germany.
Samuli Simojoki Attorneys at Law Borenius & Kemppinen Ltd, Helsinki,
Finland.
Tuomas Takalo Research Supervisor, Monetary Policy and Research
Department, Bank of Finland, Helsinki, Finland; Professor of Economics,
School of Business and Economics, University of Jyväskylä, Finland.
Monica Tamisari Senior Covered Bond Analyst, Cassa depositi e prestiti
S.p.A., Rome, Italy.
Acknowledgements
The authors wish to thank anonymous referees.
The research project has been promoted by Carefi n – Centre for Applied
Research in Finance – Bocconi University.
Carefi n acknowledges support from:
ALETTI GESTIELLE
ALLIANZ S.p.A.
ARCA ASSICURAZIONI
ARCA SGR
ASSICURAZIONI GENERALI
AVIVA VITA
AXA I. M. ITALIA SIM S.p.A.
AXA MPS ASSICURAZIONI VITA
BANCA CARIGE
BANCA MONTE DEI PASCHI DI SIENA
BANCA POPOLARE DI LODI
BANCA POPOLARE DI MILANO
BANCASSURANCE POPOLARI
BNL VITA
CATTOLICA ASSICURAZIONI SOC. COOP.
CNP UNICREDIT VITA
DELOITTE CONSULTING
EURIZON CAPITAL SGR
EURIZON VITA
FONCHIM
GENERALI INVESTMENTS ITALY
INTESA SANPAOLO
INTESA VITA
MEDIOLANUM VITA
PIONEER INVESTMENTS MANAGEMENT
SWISS RE
UBI ASSICURAZIONI
UNIPOL GRUPPO FINANZIARIO
UNIQA PREVIDENZA – UNIQA PROTEZIONE
VENETO BANCA
viii
Preface
Paolo Mottura
Financial innovation has by now become a permanent and irreversible
phenomenon, which therefore deserves to be continuously studied in order
to understand its origins and drivers, to analyse its various forms, to evalu-
ate its positive and negative externalities at the macroeconomic level and
fi nally to investigate the organic relationship with the competitive strate-
gies of fi nancial intermediaries.
The current and prospective context of fi nancial globalisation – which
involves both capital markets and fi nancial intermediaries – is charac-
terised by particularly intense competition, onto which fi nancial regula-
tory authorities try to impose certain rules, without, however, imposing
limits. Obviously the challenge lies in trying to achieve the dual objective
of, on the one hand maximising positive externalities, in other words the
benefi ts of innovation for the real economy itself, and on the other, lim-
iting as far as possible the negative externalities that innovation infl icts
on real economies and on the return/risk performance for stakeholders
(fi nancial intermediaries, fi rms, investors, public administrations and so
forth).
As far as the strategy of fi nancial intermediaries is concerned, innovation
has now become an instrument or, as some would say, a crucial competi-
tive weapon.
Process innovation, strongly supported and stimulated by new tech-
nologies, plays an essential role as a factor of differentiation between the
single producer and his/her competitors. Process innovation is focused
on obtaining results and levels of productivity and slashing the costs of
production and distribution (cost leadership), as well as improving the
quality and reliability of the procedures themselves for the benefi t of the
client, risk control and internal checks. This type of innovation contributes
greatly in improving the reputation of those who are able to manage it. It
is important to note that process technology is important for two different
reasons: on the one hand, technology that produces cost savings through
the substitution of technological investments vis-à-vis labour, increasing its
productivity and favouring more-skilled jobs, and on the other, ‘enabling’
technology which allows for the creation and valorisation of activities,
ix
