9:59:59.000,9:59:59.000
♪ [music] ♪

9:59:59.000,9:59:59.000
- [Narrator] What is a shadow bank?

9:59:59.000,9:59:59.000
Well, what you and I[br]would commonly call just "a bank,"

9:59:59.000,9:59:59.000
is actually more technically[br]a commercial bank,

9:59:59.000,9:59:59.000
and that means a bank[br]that takes deposits

9:59:59.000,9:59:59.000
from individuals and businesses,

9:59:59.000,9:59:59.000
and it's insured by the government[br]through the FDIC.

9:59:59.000,9:59:59.000
Because of the government guarantee,

9:59:59.000,9:59:59.000
depositors don't feel the need[br]to run to the bank

9:59:59.000,9:59:59.000
at the first sign of trouble[br]and pull out their money.

9:59:59.000,9:59:59.000
A shadow bank, on the other hand,[br]does not take deposits,

9:59:59.000,9:59:59.000
and so does not fall[br]under the FDIC.

9:59:59.000,9:59:59.000
Shadow banks are generally[br]any entities

9:59:59.000,9:59:59.000
that perform bank-like activities

9:59:59.000,9:59:59.000
but are not regulated[br]like traditional banks.

9:59:59.000,9:59:59.000
Examples include investment banks,

9:59:59.000,9:59:59.000
along with other complex[br]financial intermediaries,

9:59:59.000,9:59:59.000
such as hedge funds,[br]issues of asset-backed securities,

9:59:59.000,9:59:59.000
money market funds,

9:59:59.000,9:59:59.000
and even some parts[br]of traditional commercial banks

9:59:59.000,9:59:59.000
which are not covered[br]by the deposit insurance guarantee.

9:59:59.000,9:59:59.000
Take investment banks,[br]one type of shadow bank.

9:59:59.000,9:59:59.000
Investment banks are[br]a different kind of bank,

9:59:59.000,9:59:59.000
without a comparable[br]governmental guarantee

9:59:59.000,9:59:59.000
for deposits or liabilities.

9:59:59.000,9:59:59.000
The money they use[br]comes from investors,

9:59:59.000,9:59:59.000
not from depositors,

9:59:59.000,9:59:59.000
so the investors are always asking,

9:59:59.000,9:59:59.000
"If I lend my money[br]to an investment bank,

9:59:59.000,9:59:59.000
are my funds safe?

9:59:59.000,9:59:59.000
Will I get my money back?"

9:59:59.000,9:59:59.000
And these investors[br]are more watchful

9:59:59.000,9:59:59.000
and sometimes even prone to panic

9:59:59.000,9:59:59.000
if something seems to be wrong[br]with the investment bank.

9:59:59.000,9:59:59.000
And we saw a lot of this[br]during the Great Recession.

9:59:59.000,9:59:59.000
♪ [music] ♪

9:59:59.000,9:59:59.000
Check out our practice questions[br]to test your skills on shadow banks.

9:59:59.000,9:59:59.000
If you're curious to learn more[br]about the role shadow banks played

9:59:59.000,9:59:59.000
in the Great Recession, click here.

9:59:59.000,9:59:59.000
♪ [music] ♪

9:59:59.000,9:59:59.000
Still here?

9:59:59.000,9:59:59.000
Check out Marginal Revolution[br]University's other popular videos.

9:59:59.000,9:59:59.000
♪ [music] ♪