What does the term "shadow banking system" refer to?
A. Banks that operate only at night
B. Underground money-lending groups
C. Financial institutions outside the regular banking system
D. Government-owned microbanks
Answer (2)
The correct answer is: C. Financial institutions outside the regular banking system.The shadow banking system refers to financial intermediaries such as investment banks, hedge funds, money market funds, and other non-bank financial entities that perform bank-like functions (like lending or credit creation) but are not regulated like traditional banks. These institutions operate outside the standard regulatory framework, which can make them more flexible but also potentially riskier to the financial system.
The correct answer is letter C. Financial institutions outside the regular banking systemThe shadow banking system includes financial groups like investment banks, hedge funds, and others that do not follow the same rules as regular banks. These institutions lend money and invest, but they are not supervised as closely by government regulators. Before the Great Recession, these groups grew very large and took many risks. When they got into trouble, it affected the whole financial system. In the Philippines, efforts are being made to monitor lending companies and cooperatives to prevent similar unregulated risk-taking.
