Governance mechanisms in financial services include extensive risk management processes that have been developed over the past decades including new product development and approval processes employing various safeguards against unwise financial innovations.
And of course they consist of an extensive regulatory infrastructure that has been in place since before the crisis and is already being amended and extended as a result of it.
Although financial innovation has a long history of success, delivering benefits widely felt in the industry and across the broader economy, recently, some financial innovations have not been viewed so favourably supporting the need for improved governance tools to make financial innovations safer.
So the question that arises is how the existing governance mechanisms could fail in the sense that financial innovations developed unfavourable outcomes as observed in the recent past.
