Shadow banking is that part of the financial system where ‘credit intermediation involving entities and activities remains outside the regular banking system’. The term “shadow bank” was coined by economist Paul McCulley in 2007. After the financial crisis, central banks including the US, UK and EU have introduced many strong measures to control shadow banking. A global institution called Financial Stability Board is coordinating and designing these measures at the request of the G20. The Volcker, Vickers and Liikanen Reports in the US, UK and EU respectively have recommended strong regulation of the sector.
In India, shadow banks are NBFCs and this name is given to them as the NBFCs are exempted from hard regulatory norms.
