Hedge funds, insurers and other companies that do business with Wall Street megabanks are expected to pay a price for regulators’ efforts to make sure any future collapse of a giant lender doesn’t tank the entire financial system.

The Federal Reserve is set to propose so-called stays on derivative contracts that would prevent counterparties from immediately pulling collateral from a failed bank. The plan to be released Tuesday is meant to give authorities ample time to unwind a firm, hopefully heading off the frantic contagion that spread through markets when Lehman Brothers Holdings Inc. toppled in 2008.

Industry groups representing firms such as Citadel LLC, BlackRock Inc. and MetLife Inc. have resisted efforts to rewrite financial contracts, arguing that it abuses investors’ rights and could make things worse by encouraging trading partners to try to pull away from a bank at the first whiff of trouble, even before a failure.

But asset managers and insurers face a tough task in persuading the Fed to change course. Banks have already agreed to impose delays on deals with other lenders and regulators insist the plan is key to ensuring big firms can safely fail without the taxpayer bailouts seen during the financial crisis.

The Fed’s proposal is part of a global effort announced by the Financial Stability Board two years ago to set the contract stays in stone through regulation. The Office of the Comptroller of the Currency is expected to follow with its own similar version. The U.K. is well ahead, with banks doing business there required to put the stays in place by June 1.

While banking authorities can’t require money managers, pension funds and insurers to rewrite contracts, the regulators can force their hands. The Fed’s rule will probably prevent banks from doing business with firms that won’t agree to keep contracts in place for as much as 48 hours should one party to the contract collapse. If a hedge fund wants to keep doing deals with banks, it would have to toe the line.

‘Biggest Problem’

“This wasn’t the industry’s idea; this was the regulators’ idea,” Ken Bentsen, head of the Securities Industry and Financial Markets Association, said in an interview. While Bentsen said he recognizes that agencies see the rule as necessary to take down faltering banks, the “biggest problem” is if it sweeps in existing contracts rather than just targeting new ones.

More than a dozen global banking giants including JPMorgan Chase & Co., Goldman Sachs Group Inc. and HSBC Holdings Plc first agreed to start revising financial contracts in 2014, with the initial accord covering an estimated 90 percent of the derivatives market. Last year, banks expanded the agreement on contracts with each other, adding more lenders and more types of transactions, including repurchase agreements and securities lending.

Hedge funds have argued that ripping up contracts in a way that hurts clients could violate their fiduciary obligations to investors. Another point of contention is that including stays in swaps contracts runs contrary to bankruptcy law. The industry has also accused regulators of overstepping their authorities, claiming that such sweeping change should only come through legislation approved by Congress.