Although the biggest BHCs are licking their wounds (again) after reading yesterday’s CCAR release from the Federal Reserve, CCAR’s most important result isn’t how much it will cost big BHCs, but how it confirms how much the FRB wants the biggest banks to be fortress utilities on which the stability of the United States economy and financial system can stand. Taking the FRB’s statement that CCAR is so tough because it includes “counter-cyclical elements” in tandem with the new counter-cyclical capital buffer and remembering several recent FRB policy statements, my hypothesis about big-bank utilities is irrefutable. The next big question thus isn’t what the FRB wants, but whether it can get it without doing a lot of unintentional damage to its own ability to conduct monetary policy and protect financial stability.

In a recent speech and op-ed, I laid out how current FRB policy could have the unintended effect of further weakening the central bank’s ability to transmit monetary policy, already an extremely tricky business as events so far this month have expensively proved. I also argued that the FRB risked weakening the U.S. financial system as it made big banks indomitable because the U.S. financial system does not rely only on big banks. Macroprudential policy premised on fortress GSIBs could thus lead not just to a smaller GSIB “systemic footprint” – the FRB’s avowed goal – but also to giant non-bank systemic boots stomping across the financial system.

The FRB in fact knows and fears both of these potentially-perverse results of its GSIB policy, holding conferences late last year on each issue. A little-noticed paper on macroprudential policy from the Federal Reserve Banks we highlighted for clients at the time spelled out the financial-stability challenge in stark terms, concluding that none of the typical macroprudential tools in the FRB’s kit was likely to work. The sole exception: stress tests, which the Reserve Bank presidents concluded could so insulate big banks as to protect the entire financial system despite all the critical products and services abounding outside the banks.

That non-banks abound is indisputable. Don’t just read my work – see an October 2015 speech by FRB Vice Chairman Fischer. In it, he presents FRB data showing that banks provide only about one-third of U.S. credit. Mr. Fischer then goes on to tick off the macroprudential tools considered in the FRB paper referenced above and others presented at the conference at which he spoke, concluding that most of them – indeed, perhaps all of them – were problematic not just because banks were being out-gunned, but also because the FRB lacked jurisdiction over much of the U.S. financial system. Mr. Fischer’s work did not also look at “shadow liabilities,” but many other papers have recently done so, as we laid out in recent work evaluating U.S. deposit patterns.

Mr. Fischer did say in his January speech what many other FRB officials and FSOC clearly believe: given the paucity of effective macroprudential tools that could work across the financial system, the FRB should use the tools it’s got to craft the safest big banks it can. Hence we have now not just the CCyB, but also CCAR’s latest incarnation.

One can understand why the FRB clutches the biggest BHCs so closely to its collective bosom – big banks are the only stuffed animals in the central bank’s crib. I worry, though, that big BHCs will be as ineffectual a safeguard against systemic boogeymen as Teddy bears.

In a forthcoming paper, we’ll examine this question in greater depth, looking at both macroprudential- and monetary-policy transmission to determine the extent to which bank-centric regulatory policy incapacitates the central bank. I only hope markets stay calm enough and the FRB’s policies prove effective enough to give us all time enough to think these complex policies through and then change them as warranted.