shadow banking system

The shadow banking system consists of financial entities and activities that perform bank-like functions—such as lending and credit intermediation—without being regulated like traditional banks. These include entities like hedge funds, money market funds, and structured finance vehicles. They can provide essential credit and liquidity to the economy but often operate with less oversight, which can lead to increased risks. During financial crises, these shadow banking activities can amplify instability because they are not subject to the same safeguards, making their health important for overall financial stability.