Five years after the financial crisis, industry regulators are still trying to decide which institutions are—and aren't—likely to cause another collapse.
Regulators on the Financial Stability Oversight Council, or FSOC, which easily targeted the big banks and then the insurance giants, are now zeroing in on the mega-asset managers, which have largely been absent from the recession blame game—until now.
A recent report from the Office of Financial Research outlines how the country's largest asset managers could pose a risk to the global financial system, and thus be subject to greater scrutiny if they're designated "systemically important."
Large asset managers, the OFR report says, are not only complex; they also "reach for yield" or "herd" into crowded asset classes, thereby causing them to inflate asset prices and magnify market volatility, posing great risk if investors seek redemptions in a crisis.
"This is the first year we've had the data," the Treasury Department's Mary Miller said at a recent conference. Miller, undersecretary for domestic finance, said new disclosures under Dodd-Frank have shed light on some parts of the asset management industry that weren't available before, though no designation is near. "I would want to emphasize that this is still early days," she added.
Another factor also increased regulators' awareness of the economic linkage to these mega-asset managers: banks' living wills, which detail how Washington would wind down a failed bank in a future crisis. Regulators expressed surprise at the degree to which banks would need to wind down extensive business with asset managers, according to people familiar with the discussions.
(Read more: More action needed to end 'too big to fail')
The asset management industry oversees $53 trillion, and the top five mutual fund companies managed nearly half of all U.S. mutual fund assets at the end of 2012.
BlackRock, the world's largest asset manager, could be the most at risk. It has $3.8 trillion under management, and has a sizable exposure to money market funds, an asset class already under intense scrutiny by regulators.
And while other money managers may claim they have less counter-party risk since they're not native to a big bank, BlackRock can't: Pittsburgh-based PNC Bancorp owns a roughly 25 percent stake in the company, currently valued at more than $9 billion. Doug Sipkin, an analyst at Susquehanna Financial Group, expects BlackRock to be the only publicly traded asset manager to receive the systemically important designation.
Regulators aren't ruling it out. According to a readout of an Oct. 31 FSOC meeting, the OFR report was discussed briefly. However brief the discussion, the committee was said to introduce the question of whether BlackRock and smaller rival Fidelity should qualify for increased scrutiny, according to people familiar with the situation. Bloomberg News first reported that the two asset managers were under consideration.
Treasury declined to comment.
"We would build a book on anybody [in the industry], to have a sense of who they are and what they do," said one asset management executive, putting himself in regulators' shoes. "But it's hard to imagine a scenario where these companies would fail."
That sentiment is echoed across the industry, expected to put up a steep fight were any formal designation to come down the pike. After the multi-regulator report was published, the Securites and Exchange Commission chose to solicit comment on the matter. The 27 letters it received—from law firms, trade organizations and asset managers themselves—all carried harsh criticism.
(Read more: Regulators haven't solved 'too big to fail' -Morgan Stanley banker)
Scott C. Goebel, general counsel at Fidelity, called the report "an incomplete, inaccurate and misleading view of the asset management industry," and said it should not be used as a policy guide.
BlackRock's Vice Chairman Barbara Novick said asset managers have smaller balance sheets than banks and don't participate directly in capital markets or lending. Larger firms are even less risky than small firms, since they have more diverse assets. Simply put: Large "asset management firms present no systemic risk at the company level."
Atlanta-based Invesco challenged the report's authors to review asset managers' role in previous crises, noting "history would have been the logical place" to start.
(Read more: Policing banks: The feds' big fail)
T. Rowe Price, Federated Investors and AllianceBernstein also submitted letters. Four respondents from trade groups said the study was so offensive it should be retracted altogether.
The process to designate "systemically important" institutions lasts more than a year, meaning it could be 2015 before these firms know their fate. In the meantime, another challenge could come from international regulators—expected to outline their own rules for global nonbank institutions by the end of this year.