While ideally it would make sense to start with an enlarged pool of protection sellers, the regulators concerned may not be comfortable in allowing their regulated entities to write credit protection. So, to begin with, the only natural protection sellers and effective market makers may again be banks and NBFCs.
BIS central bankers’ speeches  7  In spite of the basic economic rationale behind CDS, it has been subject to many criticisms internationally, in particular the adversarial incentives it provides to the protection sellers vis-a-vis the underlying entity on whom the CDS is written. Our endeavour is to facilitate introduction of CDS while trying to address the concerns.