FINANCIAL crises may seem a familiar part of the economic cycle, but they rarely repeat themselves exactly. In the 1980s the locus was Latin America; in the late 1990s, Russia and South-East Asia; in 2007-08, American housing and banks. Now, some worry that the next crisis could occur in the asset-management industry.

The industry manages $87 trillion, making it three-quarters the size of banks; the biggest fund manager, BlackRock, runs $4.4 trillion of assets, more than any bank has on its balance-sheet. After the crisis, regulators tightened the rules on banks, insisting that they hold more capital and have sufficient liquidity to cope with short-term pressures. But that may be a case of generals fighting the last battle. In the absence of lending from banks, many companies have turned to bonds (mainly owned by fund managers) for credit.

Fund managers have caused problems in the past. The collapse in 1998 of Long-Term Capital Management, a hedge fund run by some of the brightest minds on Wall Street and in academia, led to a rescue instigated by the Federal Reserve. Bear Stearns’s bail-out of two hedge funds it had been running contributed to its collapse in 2008. In the same year a money-market fund run by the Reserve group was forced to “break the buck” (impose losses on investors), setting off a run that prompted the Fed to provide a backstop yet again.

All this has made regulators nervous. In January the Financial Stability Board (FSB), an international body which tries to guard against financial crises, published a consultation paper which asked whether fund managers might need to be designated “systemically important financial institutions” or SIFIs, a step that would involve heavier regulation. A new report from the Bank of England worries that pension funds and insurance companies are no longer playing the stabilising role in markets they used to—taking advantage of short-term market falls by buying assets that look cheap. Instead, they may be amplifying the cycle because of the need to meet more conservative accounting and regulatory requirements.

The asset-management industry has marshalled some powerful counter-arguments. First, managers act as stewards of other people’s capital, which is held in separate accounts (with third parties acting as custodians). Banks like Lehman Brothers, in contrast, were speculating on their own account. Were a fund manager to go bankrupt, the assets would simply be transferred to a competitor, with no loss for the investors concerned. Hundreds of mutual funds close each year, with minimal market impact and without needing government rescue. Second, the parallels with banks are inaccurate; with the exception of hedge funds, asset managers tend not to operate with borrowed money, or leverage. The size of BlackRock’s balance-sheet is just $8.7 billion; HSBC’s is nearly $2.7 trillion, or more than 300 times bigger. Fund managers are thus far less vulnerable to sudden falls in asset prices than banks proved to be in 2008.

Third, there is little evidence that mainstream asset managers contribute to market panics. Retail investors are less flighty than institutions; many invest through defined-contribution pensions, called 401(k) plans in America, through which they put a bit of money into the market every month. This makes them indifferent to short-term fluctuations. The Investment Company Institute, a trade body, says that in the autumn of 2008, a low point for stockmarkets, equity sales by mutual funds comprised only 6% of total trading volume in New York.

Finally, designating fund managers as SIFIs would have perverse consequences. The FSB paper stated that size was the key criterion, suggesting a threshold of $100 billion, which would capture 14 American mutual funds. This may miss the point: Reserve ranked only 81st among American asset managers and 14th among those running money-market funds. In any case, many big funds are low-cost trackers such as Vanguard’s 500 index fund, which allows retail investors to get a broad exposure to the stockmarket for fees of just 0.17% a year. As one of the consequences of being a SIFI, the fund might be required to hold a capital reserve; the cost of doing so would be passed on to retail investors. In addition, SIFIs could be required to support the orderly liquidation fund, a bail-out vehicle for other SIFIs. In other words, when the next Lehman goes bust, small investors in Vanguard might be on the hook.

As yet, no fund manager has been designated a SIFI. But Andy Haldane of the Bank of England cautions, “As any self-respecting asset manager would tell us, past performance is no guide to the future. This is especially true in an industry as large and as rapidly-changing as asset management, with asset portfolios becoming less liquid and more correlated and investor behaviour becoming more fickle and run-prone.” A recent paper from the University of Chicago concludes “The absence of leverage may not be sufficient to ensure that monetary policy can disregard concerns for financial stability.”

The worry is that herding among fund managers might lead to a general sell-off, as happened with mortgage securities in 2008. The fund-management industry is becoming more concentrated, thanks to the rise of passive funds that track an index. A category known as exchange-traded funds has grown spectacularly, with $2.45 trillion of assets, up from $425 billion in 2005. These funds allow investors to trade throughout the day, comprising a quarter of all activity on America’s stockmarket.

Some ETFs, particularly those that invest in bond markets, may be more liquid than the assets they own. Since 2007 the corporate-bond market has grown substantially but banks have cut back their market-making activities, in part to conserve their capital. As a result, a study by Royal Bank of Scotland calculates, the liquidity of the American corporate-bond market has fallen by 70% since the crisis.

The bond market is inherently less liquid than equities, because it is so disparate; General Electric has just five classes of equity but has issued 1,014 different types of bonds. According to RBS, only three of the 50 most widely held bonds have a market value of more than $1 billion, a level well below the minimum needed for a stock to qualify for the S&P 500. Around a fifth of all corporate bonds never trade at all.

Corporate-bond funds are popular at the moment, thanks to the extra yield they offer in a world where cash pays next to nothing. But it is easy to imagine a scenario in which prices start to fall, prompting redemptions by clients, leaving asset managers to sell into an illiquid market. Asset managers do not like to underperform their peers, so they would scramble to be the first to sell. Prices could plunge, forcing the corporate-bond market to close, as it did for emerging-market issuers in the summer of 2013 when the “taper tantrum” over the prospective withdrawal of American monetary stimulus was in full swing. The economy would suffer as a result.

One possibility would be to allow bond funds to suspend withdrawals at times of crisis (installing “gates”) or to impose redemption penalties. An American regulator has just given money-market funds such powers. Money-market funds can be subject to runs if investors fear they will break the buck; there is every incentive to exit the fund before losses are imposed. However, the risk of allowing gates or redemption penalties is that they will provoke rather than prevent runs, as investors try to escape before they are imposed.

Regulators are stuck between a rock and a hard place. It is their job to anticipate future crises, which may not resemble those of the past. But that logic requires them to regulate parts of the industry which have not, in the past, been the source of problems. Another concern is that risk may be a game of whack-a-mole: hammer it down in one place and it pops up somewhere else. Some of the problems regulators fret about, such as the illiquidity of the corporate-bond market, are the result of regulations imposed since the crisis. If they now bear down on funds or fund managers, they may simply create another problem somewhere else.