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The shadow banking system emerged in the early 2000s, offering a parallel financial universe to traditional banking. Investment banks and non-bank entities took center stage, performing functions akin to banks but with little oversight. Securitization, once a tool for liquidity, ballooned into complexity, masking risks with exotic structures that ultimately triggered a global financial panic when the housing bubble burst.
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A perfect storm of deregulation and loose monetary policy triggered the subprime mortgage crisis, reshaping modern finance.