“The shadow banking system can broadly be described as credit intermediation involving entities and activities outside the regular banking system. Although intermediating credit through non-bank channels can have advantages, such channels can also become a source of systemic risk, especially when they are structured to perform bank-like functions (e.g. maturity transformation and leverage) and when their interconnectedness with the regular banking system is strong. Therefore, appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks.”
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