What is Shadow Banking

Those who want to know about what is shadow banking, as the name implies, is related to the world and banking activities. If described at a glance as shadow banking, this refers to financial activities that occur in non-bank financial institutions.

So of course every institution that is incorporated into this shadow bank is not under the supervision of the banking sector authorities. The existence of these non-bank financial services institutions is all around us.

Maybe you have even seen it clearly and may also have used the services of this non-bank institution. Shadow banking is spread anywhere so that everyone can get services from this financial institution. Those of you who want to know more clearly about this shadow bank can immediately pay attention to the following information.

Understanding About Shadow Banking

What is Shadow Banking

Based on the review, it can be said that shadow banking is a term used to describe financial activities that occur in non-bank financial institutions. So all things or activities carried out by shadow banking are not subject to supervision from the regulation of banking sector authorities. The activities of these non-bank financial institutions tend to avoid monitoring banking sector authorities.

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Maybe at first glance, all the activities of this shadow bank are almost the same as the banking activities carried out by bank institutions. It’s just that generally the activities of shadow banking prioritize the existence of lending services. Shadow banks are often referred to as a source of loans for people who need them.

Shadow Banking Products

All products provided by shadow banking lead to lending activities to consumers. It can be said that all these activities are indeed carried out with the goals set by the relevant institutions. Some activities of shadow banking that may be common and widely utilized by consumers include being a place of investment.

In addition, shadow banking activities that also become products and services of this institution are providing mortgage loans and as a money market container and as an insurance company. The products from shadow banking also include hedge funds and private equity funds as well as payday lenders.

How Shadow Banking Works

Given the many activities of shadow banking, then maybe you feel curious about how this institution works. Or how this institution can function properly may be a question for you all. What is shadow banking has a way of working that is almost the same as traditional banking. So financial services institutions that are classified as non-banks tend to collect money and then invest it into various assets.

Of course, shadow banking is not regulated in the same way as commercial bank loans. Therefore, non-bank institutions incorporated into shadow banking are not subject to the regulations that apply in the banking system.

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Shadow Banking Function

Similarly, banking institutions in general shadow banking has a function that is almost similar to the institution. Shadow banking has the same function as traditional banking. For example, to raise money and invest it in various types of assets. The function of non-bank institutions incorporated into this form of shadow banking is also to provide capital to several kinds of companies.

But the thing that distinguishes shadow banking from commercial bank institutions that also provide loans to consumers is the tendency of shadow banking that is not bound by the rules that apply to commercial bank loans. The source of funding for shadow banks can be obtained from the collection of community loans.

Shadow Banking Target

The shadow banking program also has its target market and this target is beyond the reach of traditional banks. Some institutions even have targets or targets that are all startup companies. Because usually, this startup company does not have access to a bank because the chances of risk are relatively high. Shadow banks have wider targets when compared to traditional bank targets.

To be able to meet this target, shadow banking involves the process of raising funds and investing funds. Perhaps to achieve this target, shadow banks need a chain of non-bank financial intermediaries. In this case, it is also necessary to take some complicated and multi-faceted processes and actions.

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Impact of Shadow Banking

Shadow banks have an important role including expanding economic growth in each region. Its presence is also an alternative to the existence of a source of loans for consumers. The impact of shadow banking is both consciously and unconsciously is quite felt by the community.

Even in the end, the presence of shadow banking can have an impact on the economy in a country. But the impact of shadow banking does not affect traditional bank stability systems. Even so, the government in a country also provides policies on shadow banking related to all its activities for the public.

The explanation about what is shadow banking can be understood well by most people now. Shadow banking plays a role in helping the economy of the community. Because its financial services can accommodate the needs of every consumer.

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Until now the shadow banking is still operating well in the community. All its functions can run following the expectations of non-bank financial institutions that are a significant source of credit to develop the economy.