Thursday, January 24, 2008
regulatory intervention process
Risk of intervention --One year ago, direct regulatory intervention in monoline sector was unthinkable. The intervention of ACA Capital Holdings by Maryland Insurance Administration has set precedent for the sector. It is multi stage process: rehabilitation and liquidation. --Widespread downgrades in the monoline sector has a far reaching impact on the financial markets: --the loss of AAA monoline business model culd potentially force banks to consider writing-downs on the value of their monoline wraps. --A sustained lack of credible monoline wraps for SF deals could dry up SF business, further jeopardizing the economic sectors such as housing and commercia real estate that grew so dependent on structured finance in recent years. --It could also create more turmoil in the $2 trill municipal bond marekt, a market which is cretical to fixed investment in the US and which is highly dependent on monoline wraps. --The markets have a vested interest in preventing the industry from imploding.