The risks emanating from shadow banking could be primarily of four types viz., (i) liquidity risk, (ii) leverage risk, (iii) regulatory arbitrage and (iv) contagion risk •  Liquidity risk – This is one of the most common risks faced by shadow banks, as these entities undertake maturity transformation i.e., funding long term assets with short term liabilities.
The risk of ALM mismatch leading to liquidity problems is quite high. In India, we had a situation during the height of global crisis in 2008 when some NBFCs ran into severe liquidity problems as they were using short term liabilities such as CPs (commercial paper) and NCDs (Non-Convertible Debentures) to fund their long term lending or investment.