what the heck is shadow banking?
It is what they call investment trusts in China.
The Chinese banks only offer low interest rates on regular accounts. However, they have set up off-the-books trusts that offer an 8-9% return to wealthy investors by investing in risky projects. These are now about to blow up.
Shadow banking is financial institutions that act like a bank, but are not regulated like traditional banks.
Shadow banks do something similar. They raise (that is, mostly borrow) short-term funds in the money markets and use those funds to buy assets with longer-term maturities. But because they are not subject to traditional bank regulation, they cannot—as banks can—borrow in an emergency from the Federal Reserve (the U.S. central bank) and do not have traditional depositors whose funds are covered by insurance; they are in the “shadows.”
What I understand is that China has been pumping out money, within China, and around the world, in the form of loans, especially in emerging economies. They have decided to slowly stop the money flow, and the effects of that are worrying a lot of people.
It is sort of like what would happen if the Feds took their money out of the stock market? Wallstreet could simply slow down, or it could be a disaster. That’s what I understand.