## What is Shadow Banking?

_IMF Working Papers, February 11, 2014_

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## Bibliographic details
- Authors: Stijn Claessens, Lev Ratnovski
- Published: February 11, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475597349.001

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### Summary
- The paper addresses widespread confusion about what constitutes shadow banking.
- Common associations include securitization, non-traditional bank activities, and non-bank lending.
- Most view shadow banking as activities that can create systemic risk.
- The paper proposes describing shadow banking as “all financial activities, except traditional banking, which require a private or public backstop to operate”.
- Backstops can be:
  - franchise value of a bank or insurance company, or
  - a government guarantee.
- The need for a backstop is presented as a crucial feature that distinguishes shadow banking from “usual” intermediated capital market activities (examples: custodians, hedge funds, leasing companies).

### Definition and key feature
- Proposed definition: “all financial activities, except traditional banking, which require a private or public backstop to operate”.
- Crucial distinguishing feature: requirement of a private or public backstop to operate.

### Backstops (forms and implications)
- Forms of backstops identified:
  - franchise value of a bank or insurance company
  - government guarantee
- Implication highlighted: activities that require such backstops are those most associated with the creation of systemic risk.

### Distinction from intermediated capital market activities
- Activities not classified as shadow banking under the proposed definition include:
  - custodians
  - hedge funds
  - leasing companies
- These are characterized as “usual” intermediated capital market activities that do not require a private or public backstop to operate.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/what-is-shadow-banking-41334_