The IMF estimates that China has the fifth largest shadow banking sector in dollar terms among those jurisdictions which are members of the Financial Stability Board. A growing shadow banking sector is something regulators have to watch closely – not just in China but in other countries, too.
Shadow banking participants undertake maturity and liquidity transformation, they engage in the transfer of credit risk, and they operate with leverage. This means they carry out a range of bank-like functions which are associated with bank-like risks. At the same time, however, there are two key differences compared to the regular banking system.