The Governor of the Bank of Japan, Mr. Masaaki Shirakawa, delivered the keynote address at the Netherland Bank Conference last Friday. The focus was a discussion of financial innovation; he provides a brilliant analysis expanding on much of what our blog Good Innovation, Bad Innovation was suggesting. Its heartening to see the head central banker of Japan, world’s 6th most influential person, and a member of Newsweek’s “Economic Triumvirate” provide insight into these matters with such astonishing clarity and simplicity.
Without rehashing all of Mr. Shirakawa’s points, because he covers them so succinctly, we’ll just draw attention to a few that stand out. First, he agrees that innovation in finance can be a good thing; in fact he states that it’s a necessary thing to grow rapidly and that without it economies can only “grow linearly with the increase in input factors.”
Second, he states that while some financial innovations can add to society they have risks as well. He argues that these risks stem from using innovations for something other than directly helping the businesses outside of the financial industry with access to capital, relocation of risk etc. This aligns with WAIN Street’s call to challenge Wall Street to use their skills for helping middle market and small businesses to grow and prosper.
Finally, Mr. Shirakawa does an excellent job at not overly condemning or praising financial innovation as seems to be the case with many other opinions on the subject. He takes a measured approach, saying that when new innovations arise, as they will till the end of finance, there needs to be a honest dialog about the risks and benefits it brings.