Innovating Financial Information Infrastructures: The Transition of Legacy Assets to the Securitization Market

Abstract

The introduction of mortgage securitization in the UK as a new type of financial innovation to help banks raise funds took the form of transferring existing legacy mortgage assets into the emerging securitization chain. In this paper, we explore the role of financial information infrastructure (FII) innovation as a process that enabled this transition and we ask what the implications for the calculation of financial risk were. New empirical evidence from a qualitative case study research in a U.K. bank shows that instead of focusing on the re-calculation of risk of the pre-existing legacy assets, the bank’s innovative efforts were centered around validating the accuracy of the data available on those assets as an independent process. Our contribution is twofold. First, we show that FII are built with specific financial functions in mind that are formulated in the context of managerial and political decisions. Second, we show that data validation, although not a direct calculation of risk, constitutes an effort to order risk calculation practices. This is important in understanding the role of FII innovation as a mechanism by which FII become an integrating and standardising force in securitization markets.