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Shadow Banking (SB) involves all entities and activities that engage in financial activities, including those that involve credit transformation, maturity transformation, and liquidity transformation but are unregulated or regulated differently from banks that engage in those activities but are regulated and hold capital against the risk profile of the assets held on their balance sheet.

The shadow banking system refers to the segment of the financial markets where transactions take place and entities engage in activities not covered by traditional banking supervision and not buffered by capital regulations and adequate balance sheets.

The real nature of the activities and entities involved changes materially per country as the design and make-up of the sector are the consequences of the outlook of the traditional banking sector in that respective jurisdiction.