As this distinguished audience is aware, there is broad consensus and unanimity now among all key stakeholders that it was the unsustainable “financial sector-real sector imbalance” due to certain financial innovations that was the real cause of the last global financial crisis. Generic financial innovation has typically evolved in the form of both on-balance sheet and off-balance sheet derivative instruments.
While Collateralized Debt Obligations (CDOs), CDO-squared, CDO-cubed, Credit Linked Notes (CLNs) etc., are the typical examples of onbalance sheet financial innovations, Currency Swaps, Interest Rate Swaps (IRS), Futures, Options, Credit Default Swaps (CDS), etc., are those of off-balance sheet financial innovations.