Shadow banking

Shadow banking refers to non-bank institutions that create credit and provide lending outside the traditional banking regulatory framework. These entities offer a range of financial services, but they operate with less oversight and transparency than banks.

Example

Shadow banking entities can include hedge funds, money market funds, and peer-to-peer lending platforms. For example, a peer-to-peer lending platform may connect borrowers and lenders directly, without going through a traditional bank, and provide an alternative source of financing. Shadow banking can support financial innovation and access to credit, but it can also create risks for the broader financial system because regulatory oversight and transparency are more limited.