The Rise and Risks of the Shadow Banking System (Shorts)

The Rise and Risks of the Shadow Banking System (Shorts)

🌳The Federal Reserve's decision to maintain historically low interest rates has made it challenging for banks to maintain profitability through traditional lending methods.

As a result, banks have shifted their investment strategy towards securities in recent years.

This shift is part of a broader trend of expansion in the shadow banking system, which comprises a complex network of financial institutions and transactions operating outside the traditional banking system.

Hedge funds, money market funds, and special purpose vehicles (SPVs) are among the entities that make up the shadow banking system.

While the shadow banking system provides credit to businesses and individuals, it also poses significant risks to the stability of the financial system, contributing to systemic risk.