Shadow banking system (SBS) versus traditional banking system (TBS): this dichotomy constitutes the basis of SBS’s conceptualisation, examination, and analysis. Although the answer to what the TBS is seems to be straightforward, namely deposit-taking and loan-giving, it is impossible to answer the question of what the SBS is. This paradox guides this thesis and questions the dichotomy. Focusing on the European Union (EU) and generally Europe and conceiving it as a context, the established dichotomy is rejected. The understanding and reading of banking and bank history within Europe, starting from the ancient till the modern era, have been drawn on its commonly agreed modern concept. The adoption and (anachronistic to some extent) application of one prevailing concept of bank and banking seem, on the one hand, surprising considering the changes and evolution of the socio-economic-political-legal context. On the other hand, it reveals the concept’s hollowness and exposes the origin of the inability to conceptualise and define the SBS, namely the inability to conceptualise and define the TBS and in general banking. Under the EU legal framework, we observe a broad definition attributed to the traditional bank, which could encompass the so-called shadow bank. Nevertheless, it does not due to the existence of other over- and underlapping concepts, the adoption of broad exceptions to the application of the traditional bank’s definition and its underenforcement at the EU and national level. This highlights the existence of multiple SBSs and TBSs at the national level over- and underlapping differently and to some extent with the EU SBS and TBS. Apart from leading to the dichotomy’s rejection, those observations demonstrate the existence of regulatory arbitrage defined by its three underlying phenomena, the lack of one guiding spirit of law but instead of multiple over- and underlapping ones, the in-application and underenforcement of law, allowing for and promoting SBS’s establishment. Aiming to overcome the paradox and considering those underlying phenomena as tools for future research a better understanding from different perspectives of bank and banking and of their evolution is necessary.