## Shadow banking across economies
## What is shadow banking?
According to the Financial Stability Board (FSB), shadow banking in any economy captures all forms of unregulated credit outside the formal banking sector. Given this broad definition, it comes as no surprise that all forms of banking are captured in this segment, good and bad.
Markets often worry most about the size of China’s informal banking sector, though it is interesting to note that China’s shadow banking sector is relatively small when compared with those of other countries. Moreover, due to data limitations there is a certain amount of double counting of credit extension in the shadow credit estimates in our view.
Also, not all segments of China’s informal financial sector are risky. In part, this is because in a developing economy the size of China’s, there will still be a portion of the population which cannot be reached by banks due to poor infrastructure and other constraints. As a result, these parts of the economy will typically obtain financing through the informal sector known as shadow banking although they may not necessarily be high risk.
After excluding such lower risk segments, riskier segments constituted about 60% of the CNY 30 trillion of alternative (shadow banking) financing as estimated by Morgan Stanley as at end 2013.