Shadow banking changes the way financial institutions do business

Global Business

Shadow banking changes the way financial institutions do business

Shadow banking institutions are like regular banks: they provide credit and capital for companies and investors.

But unlike regular banks- they don’t take deposits.

CGTN’s Ahmad Coo explains.

Because they do not take deposits, it frees them from laws imposed on traditional lenders. Commercial banks need more oversight since they keep money for hardworking employees.

Since shadow banking firms aren’t as regulated- they virtually have free rein on how to make money.

At their best- they’re money-making machines. But at their worst, they can crash the global economy.

Unlike traditional banks, they can take bigger risks.

For example- they can borrow money for high-risk, high-return investments. That’s despite not having enough collateral to cover the loan. For decades, that’s how shadow banking firms made money.

But if bets go wrong, it can trigger a financial meltdown, like what led to the 2008 global market collapse.

Despite the shadiness of the term, shadow banking firms aren’t what you think they are.

They’re investment banks and hedge funds like BlackRock- considered the biggest shadow bank in the world.

Brian Wolfe and Robert Hockett talk about shadow banking and it impact on the global economy

CGTN’s Rachelle Akuffo spoke to Brian Wolfe, finance professor at the University at Buffalo School of Management and Robert C. Hockett, Cornell university law professor about shadow banking, its impact on the global economy and whether its helpful or harmful.