As U.S. regulators beef up standards for banks, the next crisis could emerge from the shadow banking system that is benefiting from a migration of assets, Comptroller of the Currency Thomas Curry said Wednesday in Chicago.

“The shift of financial assets into the shadow banking system could carry with it the seeds for the next financial crisis if we do not act quickly and effectively,” Curry said in remarks prepared for a Conference of State Bank Supervisors event, pointing out the move of mortgage servicing to nonbanks as an example. “We can’t tolerate a situation where banking activities migrate to nonbank financial institutions in order to escape prudential supervision.”

Curry, a former Massachusetts banking commissioner who also was chairman of the CSBS, said state regulators often have a reach much broader than his agency’s banking focus. He said much of the burden for overseeing the shadow system will fall on the states.

Curry also said state agencies ― which often “do not have the necessary staffing and budgetary resources to be full-service regulators” ― shouldn’t use chartering powers to compete for authority and fee revenue. The U.S. system allows banks to chose between being chartered by the states or by Curry’s office.

“I welcome competition, but not if the goal is nothing more than the accumulation of charters based in laxity in supervision or pricing differences,” he said. (Bloomberg)