shadow banking
Unofficial financial intermediation
Shadow banking refers to financial activities that function like traditional banking—lending, credit creation, maturity transformation—but occur outside the regulated banking system.
Shadow banks include hedge funds, money market funds, and securitization vehicles.
They provide credit and liquidity but without the capital requirements, deposit insurance, or central bank oversight that govern conventional banks.
The 2008 financial crisis exposed how shadow banking's interconnection with the broader system could amplify risk: The run on shadow banking was at the heart of the meltdown.
Bundling debts into investable instruments
- lendingTemporary provision of resources
- repoSeized collateral, informally
- collateralSecurity for debt
- underwritingRisk evaluation and acceptance
credit enhancement · tranches · credit default swaps · subprime · leverage
Pooled alternative investment vehicles
- money market fundsPooled short-term debt investments
- private equityCapital for unlisted companies
- conduitsChannels for conveying substances
- shell companiesLegally registered but inactive businesses
Economy-wide collapse potential
- contagionDisease spread by contact
- leverageBorrowed capital for amplified returns
- illiquidityDifficulty converting to cash
- interconnectednessState of mutual linkage
instability · bank run · collapse · crisis · bailout · panic · overextension · exposure
Not controlled by rules
- offshoreAway from land
- opaqueImpassable to light
- undisclosedNot made known
- hiddenKept out of sight
loopholes · tax haven · confidential · circumvention · blind spots · unlicensed · gray market
securitization
Bundling debts into investable instruments
- lendingTemporary provision of resources
- repoSeized collateral, informally
- collateralSecurity for debt
underwriting · credit enhancement · tranches · credit default swaps · subprime · leverage
hedge funds
Pooled alternative investment vehicles
- money market fundsPooled short-term debt investments
- private equityCapital for unlisted companies
- conduitsChannels for conveying substances
systemic risk
Economy-wide collapse potential
- contagionDisease spread by contact
- leverageBorrowed capital for amplified returns
- illiquidityDifficulty converting to cash
interconnectedness · instability · bank run · collapse · crisis · bailout · panic · overextension · exposure · volatility
unregulated
Not controlled by rules
- offshoreAway from land
- opaqueImpassable to light
- undisclosedNot made known
hidden · loopholes · tax haven · confidential · circumvention · blind spots · unlicensed · gray market
- financial reformbank reform, tax reform, budget reform, pension reform, bank regulation
- bankingbank, ATM, ATMs, account, accounts
- financebank, CFO, controller, finance, treasurer
- UK FinanceBank of England, pound sterling, pound, gilts, FTSE
- US bankingFDIC, Fed, bank runs, bank failures, Federal Reserve
- financial crisesfinancial collapse, bank run, economic collapse, bank failure, bank failures
shadow, shadowy, banker, banking, shadows, banks, overshadow, shadowed, shadowing