explicit guarantees against failure however, since this introduces the risk of moral hazard as risk of loss is reduced.6There would also be an ele- ment of subsidy as a bank that was perceived as benefiting from an explicit or implicit guarantee would be able to raise finance at below- market cost. This introduces an anti-competitive element in one of the most important sectors of the economy.         5Known as "high street" banks in the United Kingdom. 6This is the risk that, given that a guarantee against loss is available, a firm ceases to act prudently and enters into high-risk transactions, in the expectation that it can al- ways call on the authorities should its risk strategy land it in financial trouble.     Observation would appear to indicate that domestic regulators do not treat all banks as equal however, notwithstanding the reluctance of regula- tors to provide even implicit guarantees. The desire to avoid contagion effects and safeguard the financial system means that large banks may be rescued while smaller banks are allowed to fail. This has the effect of main- taining an orderly market but also emphasizing the need for discipline and effective risk management. For example, in the United Kingdom both BCCI and Barings were allowed to fail, as their operations were deemed to affect relatively few depositors and their failure did not threaten the bank- ing system. In the United States, Continental Illinois was saved, as was Den Norske Bank in Norway, while two smaller banks in that country were allowed to fail, these being Norian Bank and Oslobanken. In Japan many small banks have been allowed to fail, as was Yamaichi Securities, while Long Term Credit Bank and Nippon Credit Bank both were rescued. There is, of course, a cost associated with maintaining capital levels, which is one of the main reasons for the growth in the use of derivative (off-balance sheet) instruments, as well as the rise in securitization. Deriv- ative instruments attract a lower capital charge than cash instruments, because the principal in a derivative instrument does not change hands and so is not at risk, while the process of securitization removes assets from a banks balance sheet, thereby reducing its capital requirements. The capital rules for off-balance sheet instruments are slightly more involved. Certain instruments such as FRAs and swaps with a maturity of less than one year have no capital requirement at all, while longer-dated interest-rate swaps and currency swaps are assigned a risk weighting of between 0.08% and 0.20% of the nominal value. This is a significantly lower level than for cash instruments. For example, a $50 million 10-year interest-rate swap conducted between two banking counterparties would attract a capital charge of only $40,000, compared to the $800,000 capi- tal an interbank loan of this value would require; a corporate loan of this