Shadow banking is the term commonly given to activities of certain type of investors and intermediaries that take on the substance – if not quite the appearance – of lending. The growth of securities markets trading in obligations assembled from banking lending instruments like mortgages had quite a lot to do with creating the financial crisis. Lord Turner, chairman of the UK Financial Services Authority, thinks that securitisation itself has brought from benefits. But in a thoughtful lecture at Johns Hopkins University in Maryland, he argues that the resulting developments in shadow banking were "inherently dangerous". Moreover and more generally, financial innovation has brought benefits, but he concludes: "there are fundamental reasons why innovation and finance tends to be less likely to produce beneficial social impact and more likely to produce rent extraction, than innovation in other sectors."
Source document: The Turner speech is a 54-page pdf file.
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