The term refers to the practice of banking like activities performed by non-banking finance companies, which are not subject to strict regulation. However, these institutions function as intermediaries between the investors and the borrowers, providing credit and generating liquidity in the system.
Although these entities do not accept traditional demand deposits offered by banks, they do provide services similar to what commercial banks offer. And this was one reason why they escaped regulation abroad.
The shadow banking system had overtaken the regular banking system in offering loans in US before the financial crisis erupted in 2008.
ISSUES associated with Shadow banking:
- The 2008 financial crisis has shown that shadow banking href="https://www.youtube.com/channel/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1" target="_blank" class="youtube-subscribe-button"> Subscribe on YouTube