Fascinating and wide ranging article here from the Guardian.  While some of it focusses on the impact on the London financial markets [the City], the causes and effects are very global.  More on that in another post, but meantime this paragraph here makes an astute macro point, that I wanted to focus on.

Which way now when the world has shifted? | Business | The Observer

… … chief executive adds: ‘If you take a 10-year view, there is every reason to believe the financial services sector will be one of the fastest growing. Nothing that has happened in the past six months will change some of the big long-term trends, such as the privatisation of the welfare state, or the demographic drivers, such as people living longer. These are behind the development of the financial services industry.’

He goes on: ‘The conditions we have now were created by the pursuit for yield by investors in a low-interest, low-inflation environment. Some of the opaque instruments have gone, but the quest for yield has not vanished and that will drive innovation. The performance of markets over time is being pushed by those very big demographic drivers – it is completely unstoppable.’

To summarise:

• demographics and low interest environement will continue to drive the desire for higher yielding financial instruments
• opaque instruments are gone (Asset Backed Commercial Paper) market is stalled because banks can’t trust each other
• quest for yield will drive innovation

Relevance to Bankwatch:
I think its fair to say, innovation amongst the Banking industry has been almost exclusively on wholesale side, and the creation of interbank instruments, the same ones that are now failing us.  The door is open for creativity by Banks’ to open up their business model to alternatives. 

Given the theme of this blog, ‘which Banks get the web lifestyle’, it makes sense that creativity have a technology bias, and involve internet.  Before the year is out, I will do up a post on how Banks have fared in engaging the web lifestyle.  Unfortunately, it might be a short post.

I will also post some thoughts on the nature of innovation that might be adopted.