Shadow Banking System
What Does Shadow Banking System Mean?
All financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight. Shadow Banking System also refers to unregulated activities by regulated institutions. Examples of intermediaries not subject to regulation, include hedge funds, unlisted derivatives and other unlisted instruments. Examples of unregulated activities by regulated institutions include credit default swaps.
Investopedia explains Shadow Banking System
The Shadow Banking System has escaped regulation primarily because it did not accept traditional bank deposits. As a result, many of the institutions and instruments were able to employ higher market, credit and liquidity risks, and did not have capital requirements commensurate with those risks. Subsequent to the subprime meltdown in 2008, the activities of the Shadow Banking System came under increasing scrutiny and regulations.
