2023-07-01 at 12:36 PM UTC
Shadow banking is the collective term for organizations that offer bank like services, but aren't regulated as banks.
Because banks take deposits from the public, they allow multiple people to have a claim on the same money. This is a very important role banks play in the modern economy, and because of this role, the government has a huge number of regulations that are special for banks. However, complying with these regulations is expensive. Traditionally, the margin that deposits provided meant that banks had a pricing advantage against other competitors (these advantages became the source of the term banker's hours).
However, as the costs of compliance rose and liquidity in a few markets improved, the cost advantage of accepting deposits stopped being large enough to keep all competitors out.
Eventually, non-bank firms began to offer bank like products (not deposits which would entail taking on regulation costs) but loans and guarantees. These firms are not regulated by banks but can offer loans as though they were banks.
An example of a shadow bank that anyone can participate in are lendingclub and prosper, which have grown dramatically during the bank crisis when credit became hard to get for many.
Most shadow banks are firms like insurance companies or hedge funds that thanks to credit default swaps (a way to trade just the credit risk of a loan without the rest of the loan) and futures and swaps (ways to trade the interest rate risk of a loan) to become very important providers of credit to the economy (either through banks or by themselves).
TL;DR. Non-bank firms that provide loans (or products that allow others to provide cheap loans). Because they aren't banks, they have much less regulation than a bank would.
2023-07-03 at 12:51 PM UTC
Christmas clubs would be another example.
2023-07-04 at 3:33 AM UTC
Sudo
Black Hole
[my hereto riemannian peach]
Payday loans? More like "SWIM found a way to get crackheads max benefits and it's not like they were gonna pay them back anyway"
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