William Silber, "The Process of Financial Innovation," 1983

The negotiable certificate of product was first offered in 1961, and loan repurchases and bank-related commercial paper had become popular by the end of the decade. Subordinated debentures as a part of bank capital arrived in 1963 and were widely practiced by 1965. "The money-market certificate was also a by-product of interest rate levels, with an assist from favorable regulatory action," Silber writes. The author argues that most innovations in finance emerge as a response of firms to financial constraints they face, including but not limited to regulation. (Contrary to other writers, he refuses to say that companies develop new monetary products and techniques only to get around government strictures.) Novel services are often formulated to deal with uncertainty caused by volatile interest rates. He also insists that technology acts independently of its role as a response to constraints, suggesting that ATMs and electronic exchanges like NASDAQ would have been developed without the influence of regulations and other constraints. "Innovations in financial institutions and practices have improved the ability to bear risk (futures markets), lowered transaction costs (ATMs), and circumvented outmoded regulations (money market mutual funds and Regulation Q)," according to Silber. "This, the process of financial innovation described here yields economic benefits that are no less real in a welfare sense than improvements in physical technology."

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