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Shadow Banks Video Lecture | Indian Economy for UPSC CSE

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FAQs on Shadow Banks Video Lecture - Indian Economy for UPSC CSE

1. What are shadow banks?
Ans. Shadow banks are non-bank financial institutions that provide services similar to traditional banks, such as lending and investment activities, but are not subject to the same regulations and oversight as banks. These institutions operate outside the traditional banking system, hence the term "shadow" banks.
2. How do shadow banks differ from traditional banks?
Ans. Shadow banks differ from traditional banks in several ways. Traditional banks are heavily regulated and subject to strict oversight, while shadow banks operate with fewer regulations and oversight. Shadow banks also rely on short-term funding sources, such as repurchase agreements and commercial paper, rather than traditional deposit funding.
3. What risks do shadow banks pose to the financial system?
Ans. Shadow banks pose several risks to the financial system. One major risk is their potential to amplify financial crises, as they can quickly withdraw funding during market stress, leading to liquidity problems for themselves and the broader financial system. Additionally, their complex and interconnected nature can make it difficult to assess and manage risks, potentially leading to systemic instability.
4. What are some examples of shadow banks?
Ans. Examples of shadow banks include hedge funds, money market funds, investment banks, private equity firms, and certain types of insurance companies. These institutions engage in activities similar to traditional banks, such as lending, borrowing, and investing, but operate outside the regulatory framework that applies to banks.
5. What measures are being taken to regulate shadow banks?
Ans. Following the 2008 financial crisis, regulators have taken steps to enhance the regulation of shadow banks. These measures include imposing stricter capital requirements, improving risk management practices, and enhancing transparency and reporting standards. Additionally, international coordination and cooperation among regulators have been strengthened to address the cross-border nature of shadow banking activities.
144 videos|298 docs|137 tests

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