Shadow banking: The primer
The shadow banking system is a key component of the U.S. economy, but the financial crisis has frozen it solid. Senior Editor Paddy Hirsch explains what shadow banking is and why it's important enough to warrant its own bailout, called the Term Asset-Backed Securities Loan Facility, or TALF.
Shadow banks are organizations that lend money to people just like traditional banks do. The difference between traditional banks and shadow banks comes when you talk about who actually puts their money into these banks.
In a traditional bank, that money comes in from depositors. In a shadow banking system, that money comes from investors, not depositors, not people like you and I, but investors who want to invest in that company.
For more explanation on how shadow banking impacts the economy, listen to my interview on the subject from Marketplace July 14, 2010.
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