The shadow banking system that had burgeoned in the run up to the global financial crisis was one of the major causes of the global turmoil and quite understandably, the regulators are revamping its regulation to ensure financial stability. Before I dwell further on the regulatory developments, let me touch upon some underpinnings to the conceptual framework. What is shadow banking?
The term “shadow banking system” was first used in 2007, and gained popularity during and after the recent financial crisis, as it highlighted the bank-like functions performed by entities outside the regular banking system.