Why the Shadow Banking System matters?

The main problem in this system is the regulation part that doesn’t exists in such a system. The system being not regulated means that it is a very risky system that can cause numerous losses. The Shadow Banking System has come to play an increasingly significant role in facilitating credit throughout the global financial system. The lack of government regulatory oversight of the shadow banking system led to excesses precipitating in the global financial crises around 2008-2009, which is the worst economic crisis since the Great Depression of the 1930s. Moreover, this system remains highly leveraged, with a high ratio of debt linked to their liquid assets on hand to pay immediate claims. Yes we wont forget that the higher the leverage the higher the returns but also it carries outsized risk with no rules and regulations.