That is according to the Financial Stability Board (FSB), which has issued the warning in an effort to ensure the role unregulated financial institutions played in the economic downturn is not repeated.
Eric Anstee, the former Chairman of the Institute of Chartered Accountants in England and Wales, observed that further intervention from regulators would only serve to "stifle the flow of funding" to small companies.
Mr Anstee acknowledged the need for the introduction of a robust regulatory framework that strengthens the financial system.
"However," he added, "excessive intervention could have the detrimental effect of stifling the flow of funding from what the Federation of Small Businesses [calls] 'other financial institutions', which small businesses so desperately require."
Shadow banking is the name given to those financial institutions that act like banks, but are not subject to the restrictions of bank regulation.
Posted by Emily Smith