In the US , it was shadow banking that brought the economy down in 2008.  Securitized mortgages with meaningless ratings were bought by banks without a second thought.  When Bear Sterns crashed, it took banks with it.  Jamie Dimon of JP Morgan Chase may have gotten a “Stay Out of Jail” card because he bought Bear Sterns in response to a US government request.

Can the banks and the core economy operate without engaging shadow banking?  And do they want to?

The Economist has taken on shadow banking this week, and points out one significant difference between China and other countries.  Shadow banking institutions are regulated by the same agency that supervises banks, the China Banking Regulatory Commission (CBRC). This means the CBRC can tell not only whether shadow banking institutions are themselves are wobbly, but also how any wobbles would affect banks.  The CBRC and other regulators have recently strengthened oversight of shadow banking , requiring clearer accounting and limiting dealings with banks.  Shadow banking in China