Shadow banking activities, thus, include credit intermediation (any kind of lending activity where the saver does not lend directly to the borrower, and at least one intermediary is involved), and liquidity transformation (investing in illiquid assets while acquiring funding through more liquid liabilities) & maturity transformation (use of short-term liabilities to fund investment in long-term assets) that take place outside the regulated banking system.
Focusing on the pre-requisites for sustenance of shadow banking, Claessens and Ratnovski (2014) have described shadow banking as all financial activities, barring traditional banking, which require a private or public backstop (in the form of franchise value of a bank or insurance company, or in the form of a Government guarantee) to operate. 4.