Part1: what is shadow banking system?

The shadow banking system is means the non-bank intermediate entities which excise banking functions but unregulated or less regulated by the financial regulators, which include in financial instruments and financial products, such as investment bank, hedge funds, private equity funds, Structured Investment Vehicle, Collateralized Debt Obligation (the reason of 2008 global financial crisis), Credit Default Swap, Asset-Backed Commercial Paper, Repo and so on.

Compare with the Traditional commercial banking system, there have huge different between these two "bank", after summarized of these different, I suppose there have three major different parts.

1. Source of fund

Although both the shadow banking system and the traditional commercial banking system are the intermediates between depositor and borrower, but the commercial bank can absorb deposits from the individual and firms, however, the shadow banking system cannot absorb deposits, and the source of fund are mainly from the financial markets, through short-term wholesale funding and debt to raise the funds, and then use the fund to the long-term investment. 

2. Regulation

The traditional commercial banks regulated by the Central Bank, need them to publish accounts, keep plenty of capital reserve, and severely restricted those commercial banks operate high risk behaviour. But the shadow banking system is outside the regulatory system, do not need to publish their accounts, do not have limit of capital reserve and the use of leverage, therefore, the shadow banking system have a significant competitive advantage in the financial markets. 

3. The ability of risks resistance

The commercial banks can get the protection of the central bank, when there faced emergencies like the bank run, it can get the financial support by the central bank. However, because the shadow banking system is outside the regulatory of central bank, therefore, they cannot get the protection of the central bank, meanwhile, based on the use of high leverage, if a run on these shadow banks, these shadow banks must bankrupt.  As everybody knows, the 2008 financial crisis was contributing by the shadow banking system.