Shadow banking.

In plain English

Shadow banking covers firms that do bank-like work, turning short-term funding into longer-term loans, without deposit insurance or access to the central bank, so they can grow fast and freeze fast. The category includes money market funds, mortgage companies, private credit funds, securitization vehicles, and parts of the repo market. Regulators now often prefer the term non-bank financial intermediation, since shadow implies something hidden rather than simply differently regulated. These firms fill real gaps, lending where bank capital rules make loans expensive, and they connect back to banks through credit lines and trading relationships. When their funding disappears, the strain moves into the banking system through those links.

01Why it matters

A large share of mortgages and consumer loans now comes from non-banks, so the health of firms most people have never heard of decides whether credit is available when you apply.

02The math, step by step

Say a lender funds $5 billion of mortgages using 30 day borrowings that it rolls over each month. If lenders refuse to roll $1 billion of that in a stressed week, the firm must sell loans quickly, perhaps at 96 cents, taking a $40 million loss on that slice alone.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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