Shadow Banking
Shadow banking is also known as market based lending.
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. 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. A recent report by the financial stability board fsb estimated that global shadow banking assets are worth at least 75 trillion.
The movement of funds in and out of the banking system is monitored by governments as well as regulators. The shadow banking system consists of lenders brokers and other credit intermediaries who fall outside the realm of traditional regulated banking. The phrase shadow banking contains the pejorative connotation of back alley loan sharks.
Shadow banking meaning functions advantages disadvantages banking is perhaps the most regulated industry on the planet. 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. 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.
These institutions aren t regulated to the extent that traditional banks are. Analyst the companies face less regulation than traditional banks and thus have been associated with higher levels of risk. Shadow banking in fact symbolizes one of the many failings of the financial system leading up to the global crisis.
How does a shadow banking system work. A basic definition of shadow banking is lending by non bank financial institutions. 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.