Shadow Banks

A shadow bank performs bank-like activities, but is not always regulated and insured like one.

What we generally call “a bank” is technically a commercial bank. Commercial banks take deposits and are insured by the Federal Deposit Insurance Corporation (FDIC).

The shadow banking system is made up of investment banks and many other complex financial intermediaries, like hedge funds. Even some parts of commercial banks that are not covered by the FDIC can be considered part of the shadow banking system.

Why does FDIC insurance matter so much? We’ll cover that in the video.