The answer may reveal the rationale behind a report arguing for supervision by the Federal Reserve.

Hedge funds and insurers might threaten U.S. economic stability in a time of crisis, according to a report aimed at helping regulators decide which non-bank financial companies warrant Federal Reserve supervision.

An exodus of hedge-fund investors could “cause activity in some markets to freeze,” said the Feb. 3 report by staff of the Financial Stability Oversight Council. The report, obtained by Bloomberg News, also said the failure of a large insurance company could “result in dramatic and destabilizing actions being taken by investors.”

So would it have to be like a thousand funds? Just a couple big ones all at once? Are we going by number of assets or body size?

Hedge Funds May Pose Systemic Risk in Crisis, U.S. [Bloomberg]