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.

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 ...

Failure of financial firms, panic in financial markets Financial stresses peaked following the failure of the US financial firm Lehman Brothers in September 2008. Together with the failure or near failure of a range of other financial firms around that time, this triggered a panic in financial markets globally.