Regulators meet to safeguard bonds

Fears that the stock market panic may spread to the bond market led to a meeting between regulators and several large insurers of debt yesterday, according to published reports. The talks were prompted by the possibility that two bond insurers, MBIA and Ambac, may be unable to provide for their investors if their borrowers default on debt. The main focus of the talks, instigated by Eric R. Dinallo, New York’s insurance superintendent, was the raising of as much as $15 billion to safeguard banks in the event of debtors defaulting on loans. Many major banks were in attendance, including Merrill Lynch, Goldman Sachs, and Citigroup. The main concern was that a failure at even one bank to provide for their investors would result in a domino effect. Traditionally a low-risk business, the bond insurers’ concerns stem from the sector’s increasing practices of insuring debt tied to subprime lending, the risky enterprise which contributed to the recent downturn in the stock market.