Shadow Banks

Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, limited-purpose finance companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises.

Their defining features are:

  • they provide services that compete with banks but do not accept deposits
  • they take on more risk than traditional banks and are less transparent

The financial crisis transformed shadow banking with some of the largest US brokerages failing, merging, or converting themselves into traditional banks in order to gain access to funding.

Have a look at this Financial Times article published in August 2011, just after the US lost its AAA rating.

The NY Federal Reserve published a useful overview of the sector in July 2010 as did the St Louis Fed in October 2011. The Financial Stability Board now publishes annual reports on the sector.

Other sources include

Traditional Versus Shadow Banking, Page One Economics, St Louis FRB, Feb 2012
The Roots of Shadow Banking, VoxEU, 21 Jun 2012
Asset managers turn to shadow banking, Financial Times, 3 Mar 2013
What is Shadow Banking? IMF Finance & Development, June 2013
What is Shadow Banking? VoxEU, 23 Aug 2013