Shadow Banking

Lending and credit activity carried out by institutions outside the traditional regulated banking system.

Shadow banking refers to hedge funds, money market funds, private lenders, and other non-bank entities that provide credit and liquidity much like banks do, but without deposit insurance or the same regulatory oversight. It can widen access to credit, but its lighter regulation and reliance on short-term funding have made it a source of systemic risk in past crises.

Regulators grew concerned as more mortgage lending shifted from traditional banks into the less-supervised shadow banking system.