What is'shadow banking'?

Economist Paul McCulley coined the term “shadow banking” in 2007, but credit has existed outside the banking system for centuries. As banks became the backbone of finance, governments introduced rules to safeguard people's savings and rein in risk-taking by banks.

What is a'shadow bank'?

In essence, traditional banks have somewhat of a safety net. By contrast, the term 'shadow bank' refers to any type of loan that's provided by a financial institution that isn't a commercial bank or that isn't regulated as a bank.

How big is the shadow banking system?

Estimating the size of the shadow banking system is particularly difficult because many of its entities do not report to government regulators. The shadow banking system appears to be largest in the United States, but nonbank credit intermediation is present in other countries—and growing.

What happened to shadow banking?

The volume of transactions in the shadow banking system grew dramatically after the year 2000. Its growth was checked by the 2008 crisis and for a short while it declined in size, both in the US and in the rest of the world.