shadow banking

Definition

Financial intermediation that happens outside traditional regulated banks, including hedge funds, money market funds, and other entities that act like banks without pesky regulations. It's called 'shadow' because regulators prefer not to see what's happening there.

Example Usage

The financial crisis revealed that shadow banking had grown larger than the traditional banking system, with none of the safeguards.

Origin

Term coined by economist Paul McCulley in 2007 to describe unregulated credit intermediation

Fun Fact

China's shadow banking system is estimated at over $10 trillion, roughly the size of its entire traditional banking sector, creating systemic risks regulators struggle to measure.

Source: Financial regulation and macroeconomic terminology

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