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That's a really GREAT question!!

You can find out the collateral on any smartcoin by looking at the asset on the block explorer and expanding the Asset Debt positions (bottom of the page). Hero for example: http://cryptofresh.com/a/HERO

I did some quick calc's please see below:

Currently HERO is backed by 580% its value in BTS. In other words on average for every $1 of HERO there is $5.80 worth of Bitshares to back that position.

No fractional reserves aloud here :)
If ever a position is under collateralize a smart contract will margin call the position and use the collateral to buy back the outstanding debt by buying back the asset on the DEX. Remaining collateral will be returned to the borrower and the smartcoin will be settled with the network (take out of circulation)

woah! this is amazing I've never heard of bitshares but I might want to read about this.. thanks though!! ^_^

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