Traditional Versus Shadow Banking
Jan 31, 2012
Is Shadow Banking Really Banking?
By Bryan J. Noeth and Rajdeep Sengupta, The Regional Economist, October 2011
Shadow banks are defined as financial intermediaries that conduct functions of banking "without access to central bank liquidity or public sector credit guarantees." The size of the shadow banking sector was close to $20 trillion at its peak and shrank to about $15 trillion in 2010, making it at least as big as, if not bigger than, the traditional banking system. Given its size and role in the financial crisis, it would be useful to understand the mechanics of shadow banking. To do so, some basics of traditional banking need to be understood first.