The shadow banking system played a major role in the expansion of housing credit in the run-up to the 2008 financial crisis. Even so, shadow banking has grown in size and largely escaped government oversight since then, posing potential risks to the global financial system.

Shadow banking is a term used to describe bank-like activities (mainly lending) that take place outside the traditional banking sector. It is now commonly referred to internationally as non-bank financial intermediation or market-based finance. Shadow bank lending has a similar function to traditional bank lending.

Shadow banks, such as Sichuan Trust and Zhongzhi, are non-bank financial institutions, such as credit guarantee companies, hedge funds and asset management companies, that provide some of the key services of banks despite not being traditional lenders.

The seeds of the shadow banking system were sown nearly eighty years ago with the creation of government-sponsored enterprises, which include the Federal Home Loan Bank (FHLB) system in 1932, the Federal National Mortgage Association (Fannie Mae) in 1938, the Government National Mortgage Association (Ginnie Mae) in ...