Jasmina Labudović Stanković, LL.D.*
FINANCIAL INNOVATIONS
Summary
The author explains genesis of financial innovations, their essence and their effects. The paper starts with definition of financial innovations. Financial innovations facilitate and increase the efficiency of the basic functions of the financial system, i.e. reduce their costs. A particularly important issues in the paper are devoted to the reasons for the emergence of financial innovations and their effects. Financial innovations emerged as a response to the introduction of a market business model that displaced the traditional monetary concept. Financial innovations are a permanent feature of the financial system and a generator of further changes. The last part of the paper is the conclusion. Although financial innovations have positive effects, their negative ones should not be ignored either. The potentially greatest danger of financial innovations lies in the creation of systemic risk and causing macroeconomic instability. It could be said that short-term benefits come at the cost of long-term disaster.
Key words: financial innovations, competition, high technology, financial system, macroeconomic instability, systemic risk.