Speaking yesterday before Senate Banking, FRB Chairman Bernanke soundly rejected industry competitiveness complaints, telling Sens. Brown and Warren that the Fed will demand what it thinks is right for U.S. financial stability. This might help U.S. banks or it might not, but the Fed doesn’t much care anymore. Where the Fed does worry, he said, is about the shift to the shadows. He’s right here – the stampede to the exit is already thundering. What’s stunning about this is not that it’s happening or that the Fed is worried. Rather, it’s that banks, so far, don’t seem to mind.

What’s well under way here is a restructuring of finance that not only poses significant competitiveness challenges to big banks – their worry, not the Fed’s – but also new rounds of systemic risk. The best piece of current work in this arena is a 2012 study from the Federal Reserve Bank of New York. Although nominally just a literature review, it’s in fact an assessment of the ways tough new capital rules can turn into regulatory-arbitrage incentives of formidable force. The paper ducks an answer to this critical question, but it does note the real risk of a quick march from banks to non-banks by citing who’s doing proprietary trading before and after the Volcker rule.

Mr. Bernanke is clearly aware of this work, as well as continuing fulmination in the Financial Stability Board about shadow entities. The Fed is actively pushing two critical aspects of the FSB’s shadow initiative: MMF reform and changes to asset securitization. The new Basel III rules also strike at the linkages between regular and shadow banks by imposing an array of multipliers, restrictions and higher weightings to big-bank exposures to non-bank financial institutions, curtailing access for example to bond and mortgage insurers (businesses under active scrutiny by global regulators).

So far, big banks have focused on these initiatives in one-off fashion, liking some and opposing most to no discernible effect to date. Non-banks have defended their turf more effectively—see, for example, the continuing stand-off on MMF reform. Even more interesting, some of the very biggest shadow entities – non-bank asset managers – have adopted one of the smartest strategies we know: working with regulators on initiatives to curtail everyone else, while keeping heads firmly below the systemic-designation radar. New clearinghouses that concentrate risk in wondrous ways are also so far out of the systemic line of fire.

The Volcker-inspired transit of trading outside traditional banks isn’t the only shadow-bank trip of importance. Our analyses of the Basel III rules sent to clients in the past weeks show line by line how different risk weightings, combined with the enhanced supplementary leverage charge, will push key business lines outside of banking. Big-bank break-up fans will doubtlessly cheer much of this on in the expectation that some lost business shouldn’t be done by anyone, and that, once banks with implicit subsidies exit, structured finance and similar high jinks will cease. Maybe, but another major and unintended consequence is far more certain.

I’ve drawn client attention before to the real risk resulting from all of the regulatory demands that big banks hold ever larger balances of “high-quality assets” like U.S. Treasuries. This sounds good in theory – sovereigns are safe (we hope). However, there’s a limited supply of eligible HQAs and costs related to them are sure to rise. The more banks have to hold HQAs, the less their capital and liquidity capacity for other assets, even if the holdings are safe, profitable and – critical – contribute to meaningful economic activity, not just fiscal policy. Who’s going to pick up these other assets? The shadow knows.