Shadow Banking

The shadow banking system or shadow financial system is a network of financial institutions comprised of non depository banks e g investment banks structured investment vehicles sivs conduits hedge funds non bank financial institutions and money market funds.

Shadow banking. A shadow bank is any unregulated financial institution that acts like a bank but instead of financing activities through deposits it does so through investors borrowing or creating financial. Shadow banking is a catchall phrase that encompasses risky investment products pawnshop and loan shark operations and so called peer to peer lending between individuals and businesses. The movement of funds in and out of the banking system is monitored by governments as well as regulators. Shadow banking was de facto financial reform in china.

Shadow banking meaning functions advantages disadvantages banking is perhaps the most regulated industry on the planet. The phrase shadow banking contains the pejorative connotation of back alley loan sharks. How does a shadow banking system work. A shadow banking system is the group of financial intermediaries facilitating the creation of credit across the global financial system but whose members are not subject to regulatory oversight.

The shadow banking system is a term for the collection of non bank financial intermediaries that provide services similar to traditional commercial banks but outside normal banking regulations. Shadow banking in fact symbolizes one of the many failings of the financial system leading up to the global crisis. The term shadow bank was coined by economist paul mcculley in a 2007 speech at the annual financial symposium hosted by the kansas city federal reserve bank in jackson hole wyoming. These institutions aren t regulated to the extent that traditional banks are.

Shadow banking is also known as market based lending. A basic definition of shadow banking is lending by non bank financial institutions. The shadow banking system consists of lenders brokers and other credit intermediaries who fall outside the realm of traditional regulated banking.