Shadow

One of the many government programs that came out of the Great Depression was the Federal Deposit Insurance Corporation (FDIC). It started in 1934 with a coverage of $2,500 per account and today it is $250,000 per account. Over the past 20 years some new banks have started without the protection afforded by the |FDIC and they are called shadow banks. They offer the same services as FDIC banks but without the government protection. Shadow banks get their money from private investors not from individual depositors. If they are short in cash they cannot get funds from the federal reserve. The advantage is that shadow banks are not under federal regulations. Since shadow banks don't take on individual deposits they are not subject to bank runs. It basically amounts to a return to banking before FDIC but using private equity from large investors instead of getting funds from small individual depositors. In the past ten years shadow banks have grown 6 fold to $850 billion in deposits.