If we’re unlucky, we’ll next week get a chance to see just how risky the financial market really is and how good all our new rules will prove. Although FDIC Chairman Gruenberg earlier this week said he isn’t much worried by the migration of finance from regulated banks to who knows where, pretty much every other U.S. and global regulator is far more frightened than they let on in public. What really scares them is the fearsome force of Brexit plus redemption risk straining asset managers just as fixed-income markets go into a liquidity swoon without any operational-risk or resolution infrastructure in place to pick up some very, very big pieces. If this happens, FSB’s announcement early next week of its new shadow-bank regulatory plan will look particularly ill-timed and questioning will turn from why FSB wants what it wants to why it didn’t demand it any sooner. Since I hope we’ll get another systemic-risk reprieve, I’ll turn to what I think FSB will say and what it means for the next round of global financial regulation, holding my breath on Brexit as I do.

Let’s start with SIFI designation. As FedFin client reports have noted over the past year or so, designation is done for, at least when it comes to asset managers. Broker-dealers and finance companies are also in the clear with the possible exception of one big cross-border broker with its hands in lots of maturity-transforming activities that rile global regulators.  

To be sure, the International Association of Insurance Supervisors hasn’t given up the ghost – as an alert we sent out yesterday noted, IAIS has revised its designation for systemic insurance companies to keep them rolling along. In passing, I’ll note that some of what IAIS fixed – relative valuation of risks – warrants similar clean-up in the GSIB methodology, but the point remains that global regulators are cool with continuing insurance designations.

In terms of broader shadow-bank regulation, a little noticed paper IAIS released in tandem with its designation methodology packs a far bigger punch. This paper turns to the activity-and-practice process that FSB is likely next week to press also for brokers, asset managers, finance companies, and – a first – fintech companies that look a lot like them.    

Where to find the activities at non-banks that give regulators so much pause?   IAIS’s hit list includes derivatives, secured funding, illiquid-asset and credit-risk concentrations, and waterfall risks at CCPs that land with a thud on non-bank members. IAIS has also targeted an insurance-specific risk: guaranteed contracts within insurance groups and for third-party customers.

A speech yesterday from OFR Director Berner also reached remarkably similar and far from coincidental conclusions. As we noted in our analysis, Mr. Berner continues his focus on the systemic risk he and others – check Mrs. Clinton – see in shadow banks. Adding insurance companies, pension funds, and perhaps even sovereign wealth funds to his non-bank worry list and thus going farther than FSB, the OFR director says that the benefits of bank regulatory reform may well be squandered as risk simply hops merrily along.

See our 2014 paper for the Federal Reserve for an earlier version of this warning based on our view that non-banks are not necessarily riskier than banks, but that they will surely take on risk that banks shed if customers want the products banks are forced to abandon with consequences worthy of contemplation. Where there’s a market, there’s a way.

What will regulators do about these targeted systemic risks? While awaiting FSB’s list, look hard at the FRB’s new rules for SIFI-designated U.S. insurance companies. Broker-dealers, asset managers, and other possible designees like fintech and GSE successors may not have read through these proposals, but they should and pronto. Indeed, even if the company takes comfort in FSOC’s court-ordered focus on designated SIFIs, it should quickly consider the FRB’s proposed approach if it comes under the FRB in any other way or even if it depends to considerable extent on service integration with large U.S. banks.  

Why? In an unusual move, the FRB makes it very clear in its proposal that the approach for SIFI insurance companies is specific to insurance only in some ways. Once it finalizes this approach for insurance companies, it will consider how best to do so for other big non-banks. The consolidated capital rules are an important starting point for strategic consideration, but the proposed liquidity standards are in many ways even more important. Read them and weep – they dictate a new business structure and very different franchise-value propositions.