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

Related Terms

Intermediate

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Diversification

The investment strategy of not putting all your eggs in one basket, which is excellent advice until you have to figure out how many baskets to buy. It's how financial advisors tell you they don't know what will go up, so they're betting on everything.

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redemption

In finance, it's when you finally get your money back from investments, bonds, or that pawn shop guitar you regret selling. In real estate, it's your last-chance opportunity to reclaim property before foreclosure becomes permanent. Basically, it's the 'never mind, I'd like that back' clause in various financial and legal agreements, usually with a fee attached because nothing's ever free.

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Market Correction

A 10% drop in the stock market that financial experts insist is healthy and normal, like telling someone getting punched in the face that it's good for their bone density. The word correction implies the market was wrong before, raising the question of when it's ever right.

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creditor

The person or institution you owe money to, who will periodically remind you of this fact with varying degrees of politeness. In the great financial food chain, creditors sit above debtors and pray they'll actually get paid back. They range from your friendly neighborhood bank to that guy you borrowed twenty bucks from in college and somehow never repaid.

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stuffing the channel

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💰 Finance / Accounting

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