One has to wonder if Goldman Sachs, Morgan Stanley, CIT, and American Express are all waking up looking in the mirror and, much like men turned into werewolves in 1930s horror movies, wondering what they’ve become. I can just hear them crying, “My God, I’ve turned into a bank!” A bank is now very different from mortal financial institutions, as the OCC makes all too clear in its newly heightened expectations for the biggest ones among them that – at least so far – have chosen to have national charters. Is this the transformational moment that finally forces big banks to lurk deep within the shadows?

For a while yet, the answer to this question is no. Several of the biggest newly-hatched banks very carefully chose state charters under a still somewhat more merciful Fed. For them, the day of reckoning remains more distant, should the Fed decide at all to follow the OCC and segregate insured financial institutions into freestanding island rocks within their parent holding companies. But, for the biggest national banks that need this charter to operate efficient interstate retail networks, tough times are indeed ahead.

In the near term, the most formidable challenge for these big national banks and – especially for their boards – is to align all their current risk-management protocols into compliance with what the OCC very rightly calls its heightened expectations. As our report lays out, the most difficult problems here may lie in the new risk-appetite statements. These are a requirement global regulators have decided upon to ensure appropriate risk “cultures,” but no one before the OCC has done much with them but establish broad principles for what they might be. Turning an appetite statement into a prix-fixe menu that limits a national bank’s choices will be very complex, especially if examiners view this as a mandate for zero-tolerance risk thresholds.

But, structurally and strategically, the OCC’s challenge to national banks and their friends under its purview – federal savings associations and insured federal branches of foreign banks – is a game-changer. Over the next few quarters, these standards – effective right about now for national G-SIBs – will bar upstreaming dividends to BHCs right about the time the parent company needs them for CCAR. Strategic realignment between the bank and parent companies will also be hard to do if anything a parent wants to downstream to the insured bank poses risk in the OCC’s view. Inter-affiliate transactions are thus constrained, no matter what Sections 23A and 23B of the Federal Reserve Act might otherwise allow.

Perhaps the biggest immediate concern, though, is the OCC’s new requirement that expense-reduction efforts fall within this tough new risk rubric. National banks, like all of their colleagues, have recently come to rely on savings to buttress beleaguered revenues as a prop to shareholder return. The OCC is, though, concerned – rightly, I think, in many cases – that savings are coming all too often on the back-end needed to ensure operational resilience, risk-management capability, and recovery under stress. We’ve seen too many examples of firms that cut corners to book big earnings – Fannie and Freddie come immediately to mind. Still, if expense reductions are the cure du jour, national banks will need another solution to the severe strains caused by a lethal combination of slow economic growth and low interest rates.

Can banks be run both as fortresses and yet still be profitable? We don’t know and most national banks will do what they can not to be the canaries down this mine shaft. If the answer is no, then financial intermediation will move still more quickly from banks to non-banks, giving regulators something very new to do.