SHADOW BANKING

Shadow banking refers to all those non banking financial intermediaries that provides services similar to those of traditional commercial banks.These institution operate out side the regular banking system meaning that they function in an environment of lesser transparency and regulation than those institutions performing the same functions in the mainstream banking arena.

Difference between shadow and commercial banks::

1) commercial banks are the depository institutions and hence create money,but shadow bank cannot create money.

2) commercial banks are tightly regulated by rules and regulations of RBI, shadow bank are less regulated and their business operations lack transparency.

3) commercial banks derive funds through the mobilization of public deposits,shadow banking raise funds by and large through market based instruments such as commercial paper, debentures,or other structured credit instruments.