According to the Financial Stability Board, the Shadow Banking system is "the system of credit intermediation that involves entities and activities outside the regular banking system".

Possible shadow banking entities and activities include:

  • Money Market Funds (MMFs) and other types of investment funds or products with deposit-like characteristics

  • Investment funds that provide credit or are leveraged, including Exchange Traded Funds (ETFs) and Speculative Fund (HEDGE FUND)

  • Finance companies and securities entities providing credit or credit guarantees or performing liquidity and/or maturity transformation without being regulated like a bank

  • Insurance and reinsurance undertakings which issue or guarantee credit products, and

  • Securitisation and securities lending and repurchase agreement (repo) transactions.

The EU is trying to take action to limit it as a new source of financial instability. A green paper has been released on Shadow Banking.