The term 'shadow banking' refers to the bank-like functions performed by entities outside the regular banking system. The Financial Stability Board (FSB) defines it as a ‘credit intermediation involving entities and activities (fully or partially) outside the regular banking system' that has been globally accepted. The term was first used in 2007.

Shadow banks are mostly involved in activities such as securitisation, securities lending, and repo transactions that act as important sources of funding for non-bank entities. Thus, shadow banks comprise entities that conduct financial intermediation directly, such as finance companies or NBFCs, and entities that provide finance to such entities, such as mutual funds.