One way of preventing the development of excessive risk concentration in the derivatives market, for instance, would lie in maximum standardisation and settlement through central counterparties. To be effective, this, naturally, would of course require a regulatory framework which ensures that these central counterparties are well capitalised and well run and that they conduct prudent collateral policy.
Sovereign credit guarantees have significantly reduced the amount of capital that banks and other depositories need to hold, since creditors demand less of a buffer to protect themselves from the failure of institutions that are the beneficiaries of such guarantees.