In the last two to three decades, growing innovations in the financial sector, changes in regulatory framework and growing competition with non-bank entities caused banks to shift a part of their activities outside the regulatory framework. This contributed to the growth of shadow banks.
As a result, shadow banking activities have evolved over time in response to newer set of regulation and supervisory guidelines and spread in the domains where the scope for regulatory arbitrage was higher. It emerged not only as an avenue for exploiting  1  See Financial Stability Board (2012).