When central bankers discuss the prospect of negative interest rates, it sounds like the doctoral dissertations they wrote decades ago — highly theoretical and sometimes almost theological discourses on what would happen to growth and inflation, with nary a thought to financial stability.

But with some at least toying with the concept of negative rates to accelerate economic growth, and other countries already taking that step, U.S. bankers should begin reckoning with the impact.

To be fair, the chance of U.S. policymakers lowering rates below zero is low under normal market circumstances because most members of the Federal Open Market Committee want to keep rates well above the zero lower bound, or ZLB. But any false sense of security that rates will never go negative was shattered by the Fed’s most recent stress test scenarios, which require large banks to wargame their ability to withstand adverse hypothetical conditions. The “severely adverse” scenario includes short-term Treasury rates that fall below zero for sustained periods, with a virtually flat yield curve making the scenario still more challenging.

By forcing banks to test their strength in the face of such simulated conditions, the Fed may think it has the financial stability problems tied to negative rates covered. But the impact on both profit and purpose of negative rates for banks both large and small is profound, with ripples that quickly would sweep through the rest of the financial system. Should the Fed want or be forced to set nominal negative rates, we need a clear assessment now of just what would happen to U.S. banks and other financial institutions.

It is easy to dismiss the warnings of the financial-stability implications of negative nominal rates, such as a white paper issued in September by Federal Financial Analytics, as alarmist. The focus has been and continues to be on the Fed’s raising rates. Many folks discounted such worries out of a belief that in jurisdictions with negative rates — such as Sweden and the eurozone — nothing all that bad seemed to be happening.

The Fed has been somewhat circumspect about the likelihood of the U.S. central bank ever lowering rates below zero. Although Fed Chair Janet Yellen signaled in November that negative rates “would be on the table” in a serious downturn, she has eschewed having an opinion about such a move to spur growth under more benign conditions. Vice Chairman Stanley Fischer publicly discussed the idea in a speech in January, but was noncommittal. Other economists have been clearer. Narayana Kocherlakota, a professor at the University of Rochester who recently stepped down as head of the Federal Reserve Bank of Minneapolis, has consistently pressed for negative rates.

A few central bankers abroad have raised red flags about the consequences of negative rates, such as in an April speech by Herve Hannoun, former deputy general manager for the Bank of International Settlements. Other central bankers also saw negative rates coming, but viewed them with preternatural calm. For example, Andrew Haldane at the Bank of England recognized that negative rates could force the citizenry to hoard physical cash. His solution has the simple elegance only an all-powerful central banker could concoct: abolish physical cash so it’s easier for central banks to plunge below the ZLB if they think it’s good for the populace.

However, any care by the Fed or other central banks to try and comfort the bond markets isn’t working. Over just the past two or three weeks, traders have gone from pricing Treasuries based on a rate rise to betting on a dip below the ZLB.

What would negative rates mean for U.S. financial stability?

The real problem with nominal negative rates compounded by a flat yield curve is that they upset the fundamental premise of banking and, therefore, the role banks play in financial intermediation. When rates go negative, depositors pay bankers and bankers pay borrowers. If this simple scenario played out, then depositors will look for places other than banks to house their wealth and bankers won’t make loans. In a less simple scenario — the one that’s playing out now in Europe — the financial-intermediation equation doesn’t totally flip, but it still fundamentally changes. There, some depositors are paying their bankers even as they search for other depositories, and bankers are still getting interest from borrowers on new loans, although at rates that make profitability still more challenging. Bank funding costs are also either at zero or now negative, meaning that lower asset returns can’t be offset with lower funding costs.

Last Friday, Japan stunned global markets with its own approach to negative rates. The result so far is that several money market funds and other investment vehicles have simply shut down, while stocks have gyrated as investors look for someplace to earn a return.

Regardless of one’s opinion of banks, economies need financial intermediation and financial intermediation needs banks. If banks turn away deposits and try not to make loans — what is happening in other nations with negative-rate policies that could happen here as well — then capital formation will hit a very hard wall with unknown macroeconomic and financial-stability consequences.

Bankers fearful of the consequences of negative rates should be sure the Fed hears them loud and clear. If the Fed were to choose negative rates — especially if it is forced to do so under stress conditions — without a plan to protect market liquidity and ensure positive returns to bank funding sources, shockwaves with untold consequences could ripple through the financial system.

Karen Shaw Petrou is managing partner of Federal Financial Analytics.