Financial Innovation


DEFINITION of 'Financial Innovation'

Advances over time in the financial instruments and payment systems used in the lending and borrowing of funds. These changes, which include innovations in technology, risk transfer and credit and equity generation, have increased available credit for borrowers and given banks new and less costly ways to raise equity capital.

BREAKING DOWN 'Financial Innovation'

As seen with the global credit crunch sparked in 2008, which was triggered at least in part by innovative financial products such as exotic ARMs, there will always be a need for careful scrutiny of innovative financial products and their risks.

  1. Speculative Risk

    A category of risk that, when undertaken, results in an uncertain ...
  2. Return On Innovation Investment

    A performance measure used to evaluate the effectiveness of a ...
  3. Available Credit

    The unused portion of an open line of credit, such as a credit ...
  4. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  5. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  6. Bid Wanted

    An announcement by an investor who holds a security that he or ...
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