There are advantages to the financial system of requiring CCPs to be used for all standard derivatives transactions between financial institutions. A CCP stands between the two parties in an OTC derivative transaction in much the same way that a clearing house does for exchange-traded contracts. It absorbs the credit risk but requires initial and variation margin from each side. In addition, CCP members are required to contribute to a default fund. The advantage to the financial system is that there is a lot more collateral (i.e., margin) available and it is therefore much less likely that a by one major participant in the derivatives market will lead to losses by other market participants. The disadvantage is that CCPs are replacing banks as the too-big-to-fail entities in the financial system. There clearly needs to be careful oversight of the management of CCPs. default profit loss illegal activity