Financial Innovation increases bank growth, bank credit supply, and bank lending.
Thortsen Beck et al, 2016, Thorsten Beck is Director of the Florence School of Banking and Finance and Professor of Financial Stability at the European University Institute. He is a research fellow of the Centre for Economic Policy Research (CEPR) and the CESifo. “Financial innovation: The bright and the dark sides” 2/22, Financial Innovation, https://www.sciencedirect.com/science/article/pii/S0378426616301133?via%3Dihub- CG
On the one hand, there is supporting evidence that financial innovation increases bank growth and supports financial deepening. For example, DeYounget al. (2007) find that Internet adoption improved U.S. community banks’ profitability – primarily through deposit-related charges. Several studies document that small business credit scoring increases the quantity of bank lending (Frame et al., 2001, 2004; Berger et al., 2005). Saretto and Tookes (2013) find that CDS trading increases bank credit supply, while Norden et al. (2014) show that banks that use credit derivatives as risk management tool pass these benefits on to their clients in form of lower interest spreads and cut lending less during the recent crisis. Using “counterfactual historic analysis”, Lerner and Tufano (2011) document the positive contribution to financial deepening and economic growth of financial innovations, such as venture capital and equity funds, mutual and exchange-traded funds, and securitization.