Regulators watching bond insurance situation
WASHINGTON (Reuters) - A senior Treasury Department official and the head of the Federal Deposit Insurance Corp said on Thursday they were keeping a close eye on mounting losses of bond insurance companies linked to subprime mortgages.
"We are closely monitoring this," FDIC Chairman Sheila Bair said in response to a lawmaker's question during a Senate Banking Committee hearing on preventing home foreclosures.
"It is something that is on our mind too," Treasury Under Secretary Robert Steel said. "These organizations are state-regulated, and the good news is that state regulators are engaged and seem to be working with them."
Bair, whose agency provides deposit insurance for U.S. banks, told reporters after the hearing that banking regulators are trying to evaluate banks' exposure to municipal bonds and counterparty transactions.
The New York state insurance regulator is trying to organize a plan to stabilize the bond insurance industry, where losses are mounting because the companies guaranteed bonds linked to subprime mortgages.
The industry guarantees more than $2.4 trillion of debt, and as losses mount and agencies slash ratings, the bond market may be thrown into disarray, sending borrowing costs higher for cities and consumers.
Earlier on Thursday, MBIA Inc (MBI.N), the world's largest bond insurer, reported a fourth-quarter loss of $2.3 billion but the company's chief financial officer said it has enough cash to cover its needs over a two-year period.
(Reporting by John Poirier; Editing by James Dalgleish)
