Shadow Banking System
About Shadow Banking System
The shadow banking system refers to non bank financial intermediaries that perform bank like functions without bank regulation. This includes money market funds, hedge funds, structured investment vehicles, and repo markets. The shadow banking system grew enormously before 2008, reaching over 60 trillion globally. It provided credit outside the traditional banking system. The 2008 crisis revealed that shadow banking was vulnerable to bank like runs. Money market funds broke the buck when the Reserve Primary Fund fell below 1 per share. Repo markets froze. Post crisis regulations brought some shadow banking under oversight through the Dodd Frank Act. The Financial Stability Board monitors global shadow banking.
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