Traders in financial and commercial markets have long been familiar with the witching hour that comes when stock options, index options, and index futures expire every year (for us, June 30). Regulators have learned to live with the market-rattling episodes that follow it. But policymakers now face a different witch’s brew that has been bubbling up for years, and that could prove far more dangerous and harder to contain. The first ingredient is the explosive growth of financial intermediation outside the banking system (“non-bank financial intermediation”), comprising a sprawling universe of private credit funds, undocumented hedge funds, hot money-market vehicles, and insurance-linked structures, albeit out of the tax net. Many operate, in part, like banks but with minimal oversight from a financial-stability perspective. The second ingredient is the relentless rise in public debt across all major facets of the economy, compounded by geopolitical fragmentation and rising tensions that leave little room for policy error. The last part of the recipe is stalled implementation, or outright reversal in some jurisdictions, of the regulatory reforms enacted as a global response in economies after the 2008 financial crisis, but we continue to flout them at home. In a new........

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