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date: 13 November 2019

Abstract and Keywords

Financial innovation has transformed intermediation from a process involving a single financial institution to a chain of transactions broken down among several institutions. Following the Great Financial Crisis, financial intermediation has shifted significantly from banks to non-banks, providing credit in the “shadows” of the regulated banking system. This chapter offers a definition of shadow banking and explanations for its existence, as well as providing an overview of attempts to measure its size. It explains how shadow banking differs from other forms of non-bank intermediation, in particular market-based finance, and discusses why regulators and academics should care about it. Further, the chapter reviews efforts to strengthen supervision and regulation and discusses some policy challenges on the horizon in the context of case studies.

Keywords: credit transformation, financial intermediation, liquidity transformation, market-based finance, maturity transformation, non-bank financial institutions, shadow banking

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