Shadow bank - Financial definition
Concise definition of the term shadow bank
A shadow bank (also known as a shadow financial institution) is an entity that performs bank-like functions but is not regulated as a traditional bank.
Comprehensive definition of the term shadow bank
These institutions operate outside the regular banking system and may offer various financial services, including lending and investments, without being subject to the same regulatory requirements as traditional banks.
Typically, shadow banks are non-bank financial intermediaries such as investment funds, money market funds, insurance companies, hedge funds, and other financial institutions conducting banking activities but without the same regulatory structures and safety mechanisms.
Shadow banks can pose an increased systemic risk as they may be able to accumulate credit and liquidity risks without being subject to the same oversight as traditional banks. Therefore, monitoring and regulating shadow banks are crucial aspects of financial stability and security. Regulatory authorities aim to address these gaps and ensure that shadow banks are appropriately supervised to minimize potential risks to the financial system.