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First, traditional Commercial Banking is regulated by the Federal Reserve System, in particular, they must keep a certain amount of their depositer's money in reserve. The deposits are insured by the FDIC.
Because of a change in banking regulations, other financial institutions, like insurance companies, non-bank mortgage lenders, investment companies (hedge funds) were allowed to do what traditional banks do, "without" the same controls or FDIC oversight. For example, selling non-traditional mortgages, or mortgages without proper documentation.
The 'theory' was that in a free market system, it was in the best interest of the unregulated banks, to behave in the best interest of their clients, hence, they would not take unecessary risks, hence no need for regulation.
Those are the "shadow banks", and that's (very simply) shadow banking.
What else can I help you with?
What are the factors that affect the money supply?
The factors that affect money supply are the required reserves for bank rates. Money is mostly created by loans, therefore the shadow banking system is the one that creates the loans. The federal banking system does not control the shadow banking system, so therefore there are no reserve requirements.
Is investment banking part of the Core banking systems?
No. Investment banking doesn't have to be part of core banking and/or minimal banking services. Investment banking is essentially a very different type of banking, it is not the same as retail, commercial or trade banking (which would constitute as core banking).
What is postal banking?
postal banking is the sysem of banking faster system to develop to the banking process.
What is the meaning of Banking and non banking institutions?
A banking institution is required to have a full banking license and is supervised by a banking regulatory agency. Non-banking is a financial institution that does not have these requirements.
What is net banking and core banking?
Core banking refers to banking services provided by a network of branches. Internet banking is the ability to complete banking transactions from your home using your computer.
What is meant when someone talks about the shadow banking system?
When someone talks about the shadow banking system, it means that commercial banks and investment banks provide services to customers in a traditional banking system. The central banks monitor and regulate the activities of the shadow banking system.
What are the factor affection supply?
The factors that affect money supply are the required reserves for bank rates. Money is mostly created by loans, therefore the shadow banking system is the one that creates the loans. The federal banking system does not control the shadow banking system, so therefore there are no reserve requirements.
What are the factor affecting money supply?
The factors that affect money supply are the required reserves for bank rates. Money is mostly created by loans, therefore the shadow banking system is the one that creates the loans. The federal banking system does not control the shadow banking system, so therefore there are no reserve requirements.
What are the factors that affect the money supply?
The factors that affect money supply are the required reserves for bank rates. Money is mostly created by loans, therefore the shadow banking system is the one that creates the loans. The federal banking system does not control the shadow banking system, so therefore there are no reserve requirements.
How does international banking differ from domestic banking?
There is a difference between international banking and domestic banking. International banking is banking among different countries. Domestic banking is banking among one country.
Difference between chain banking group banking?
Difference between chain banking group banking?
Is investment banking part of the Core banking systems?
No. Investment banking doesn't have to be part of core banking and/or minimal banking services. Investment banking is essentially a very different type of banking, it is not the same as retail, commercial or trade banking (which would constitute as core banking).
What is postal banking?
postal banking is the sysem of banking faster system to develop to the banking process.
What is the meaning of Banking and non banking institutions?
A banking institution is required to have a full banking license and is supervised by a banking regulatory agency. Non-banking is a financial institution that does not have these requirements.
What is net banking and core banking?
Core banking refers to banking services provided by a network of branches. Internet banking is the ability to complete banking transactions from your home using your computer.
Is consumer banking same as retail banking?
Yes, consumer banking is basically the same as retail banking.
Where might one find a commodity trading firm?
The FSB included commodity traders- most of which are privately-held, Swiss-based companies that traditionally operate with little regulatory scrutiny - in a study of shadow banking completed late last year. The FSB will present recommendations on shadows banking to G20 leaders in September.
