Here’s a definition from former US Federal Reserve Chairman Ben Bernanke provided in April 2012:

“Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions — but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions.” (emphasis added) – Source

Translation – it’s criminal. 

If an entity conducts business “outside [of], or ways only loosely linked to, the traditional system of regulated depository institutions,” then that means it has no regulation, no oversight, no one keeping an eye on it. Well, that’s not actually true, the organization responsible for regulating shadow banking is the Federal Reserve, and we know how honorable that institution is. 

In other words, shadow banking is a euphemism for black-market banking, pirate banking, criminal banking, which the Fed is intimately a part of. 

When you want to access liquidity or deposit funds without having to worry about pesky banking regulations, a shadow bank is a place to do it.