If trouble in the so-called monoline business gets even worse, banks may have to set aside
Several banks hedged holdings of complex mortgage-related securities known as collateralized debt obligations (CDOs) by buying guarantees from bond insurers such as
But FGIC has lost its crucial AAA rating and its two larger rivals are in danger of losing theirs too. If that happens, the guarantees they sold to banks will probably be worth less and these counterparties may have to write down the value of their hedges.
About 20 banks and securities firms have roughly
"We are currently evaluating these individual exposures to assess how institutions can absorb the additional counterparty reserves that might be required if one or more financial guarantors were downgraded," the agency said in a statement.