From the course: The ABCs of the Banking and Insurance Business: AML, KYC, the NAIC, IFRS, and More
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The rise of shadow banking
From the course: The ABCs of the Banking and Insurance Business: AML, KYC, the NAIC, IFRS, and More
The rise of shadow banking
- [Instructor] In this video, let's explore an intriguing and sometimes controversial part of the financial world, shadow banking. Shadow banking refers to financial activities and entities that operate outside the traditional banking system, but performs similar functions such as lending and investing. Unlike traditional banks, shadow banks are not regulated to the same degree, making them more flexible, but also riskier as entities. Now, shadow banking sounds rather mysterious and even nefarious, but it's essentially just private firms doing the type of lending banks do, without governments insuring them or regulating them. Examples of shadow banking entities include hedge funds, private equity funds, investment vehicles, and non-bank lenders like mortgage companies. These entities do not take deposits like traditional banks, but they provide credit and liquidity to the financial system. Here's how shadow banking typically works. First, these entities raise capital through…
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