The financing of the economy does not rely exclusively on traditional banks.
Over the past few decades, many non-bank financial actors have developed lending, investment and intermediation activities that also contribute to the circulation of capital. This set of activities, conducted outside the traditional banking system while remaining closely linked to it, is referred to as shadow banking.
A parallel system of financial intermediation
Shadow banking, or shadow banking, encompasses the intermediation activities carried out by institutions that are not banks in the traditional sense, but that participate in financing the economy.
It includes, notably, certain investment funds, securitization vehicles, money market funds, specialized financial companies and other non-bank intermediaries.
These actors collect resources, provide financing or invest on the financial markets without being subject, in all cases, to the same regulatory framework as commercial banks.
A role in financing the economy
Shadow banking allows diversifying the sources of financing for businesses and investors by complementing traditional banking circuits.
It can improve market liquidity, foster financial innovation and offer financing solutions tailored to specific needs.
However, due to the close ties that exist between these actors and the banking system, it can also become a source of risks to financial stability, particularly when activities are heavily leveraged or insufficiently regulated.
This is why regulatory authorities monitor its evolution closely and seek to limit the systemic risks it could pose.
Shadow banking illustrates the gradual transformation of modern financial systems, where an increasing share of intermediation is carried out by non-bank actors. Its development highlights the need to adapt monitoring and regulatory frameworks in order to preserve the stability of the financial system while allowing diversification of the economy’s financing sources.
