What does shadow banking mean?
Shadow banking refers to the financial activities that take place outside the traditional banking system. These activities are typically conducted by non-bank financial institutions, such as hedge funds, money market funds, and investment banks. While these institutions may not have the same regulatory oversight as traditional banks, they play a crucial role in the global financial system by providing liquidity, credit, and other financial services.
The term “shadow banking” was first used in the early 2000s to describe the rapid growth of non-bank financial intermediaries that were engaged in activities similar to those of commercial banks. These institutions were often able to operate with less regulatory oversight, which raised concerns about the potential risks they posed to the financial system.
In the following paragraphs, we will delve deeper into the key characteristics of shadow banking, its role in the financial system, and the risks it poses to economic stability.
