Monolines

  • Bill Ackman
  • Eric Dinallo - 2007 01 - 2009 07 - New York State Superintendent of Insurance
  • 1998 - SOA - Credit Enhancement of Guaranteed Investment Contracts and Funding Agreements, Society of Actuaries - 14p
  • 2003 - Monoline Insurance & Financial Guaranty Reserving, by James P. McNichols, Casact.org - 74p
    • ... language and verse that beautifully skates the thin ice between comprehensibility and nonsense had a certain relevance in my early days in the financial guaranty business.
  • 2020 - Book - Confidence Game, by Christine S. Richard
    • MBIA, Bill Ackman
  • 2008 0125 - Barclays Capital - Decoding the Fed and monolines - 23p
    • 266 On January 20 2008 Barclays Capital published a research article titled "Decoding the Fee and monolines" Among other things the article stated: The key issues tor the monolines are:
      • 1) the potential downgrade of all structured securities they wrap, ranging from municipal bonds to routine ABS transactions to structured deals with the potential for forced selling and further write-downs; and
      • 2) whether there will have to be further bank write-downs on the value of the hedges investment banks sell to them.
    • Global banks could end up requiring up to S143bn in additional capital.
    • During the second half of 2007, it became increasingly clear that the monolines will need to pay cyclical claims on exposures in these this time around whereas they have never needed to do so before Bank exposures could be relatively high, on the other hand. So far they have been reticent about giving toc much detail.
    • In terms of our understanding of now banks' capital may be affected by monoline downgrades we believe it is double-edged.
      • On the one hand, bank equity will be hit by any negative mark to market on the difference in value between the wrapped (AAA) security and the underlying. 
      • On the other, as the security credit quality (and rating fails, the risk-weighting attached to it should rise.
      • This puts additional pressure on bank capital requirements.
  • 206. In an effort to avoid having to recognize losses tied to its monoline counterparty exposures, Barclays joined a group of other Wall Street banks to bail out the insurers.
    • On February 1, 2008, TheStreet.com and other news agencies reported that a consortium of banks, including Barclays, were “working in conjunction with New York Insurance Superintendent Eric Dinallo to hammer out a bond insurer bailout plan.”
    • Barclays knew it had to bail out the monolines in order to stave off writedowns on its own mortgage-related exposure, because if the insurers failed, Barclays could no longer claim its exposure was insured or hedged by the monolines.
    • As soon as the monolines could not backstop those losses the credit ratings on those bonds would fall, resulting in huge losses for Barclays.

In re BARCLAYS BANK PLC SECURITIES LITIGATION, Case 1:09-cv-01989-PAC Document 66 Filed 09/16/13 Page 81 of 101

  • 2009 1117 - FCIC - Hearing - Financial Crisis Inquiry Commission Closed Session - Geithner - Transcript - 50p
    • AUDIO - 2009-11-17 FCIC staff audio tape of interview with Timothy Geithner, Department of the Treasury.mp3
    • Commissioner Brookley Born:  Largely, because of a lack of transparency?
    • Secretary Tim Geithner:  I think part of it is that; but, again, derivatives -- if the monoline insurance companies and AIG were not allowed to -- were not able to write huge amounts of protection with no capital to back it up -- when I said about capital, I meant among the regulated in the areas -- if they had not been able to overwrite those commitments, it would have been a less serious crisis -- a much less serious crisis.
    • And that’s just a more simple thing.
    • It’s not about derivatives so much as being no capital to back a commitment.
    • It doesn’t need a fancy -- it’s not a fancy product or even so much oversight of derivatives.
    • It’s just the regulatory authority responsible for those institutions did not force them to hold capital against their commitments.
  • 15. In March 2008, the New York State Assembly held hearings on the monolines.13
    • Eric DiNallo, at that time the superintendent of the State Department of Insurance (today amalgamated into the Department of Financial Services), reported that, while the Department was helping the monolines to recapitalize, it was already “studying what steps could be necessary if one of the bond insurers is unable to find the capital it needs to maintain its ratings and stabilize its business.”14
  • In other words, by March of 2008, the Department was acknowledging the possibility that monoline insurers could fail.  (p401)

barclaysbankplcsecuritieslitigation.com/media/934797/sharan_nirmul_exhibits_211-234.pdf

  • 2014 0520 - GOV (House) - Legislative Proposals to Reform Domestic Insurance Policy - [PDF-128p, VIDEO-YouTube] 
  • (p18) - The current decentralized regulatory regime for monolines is aimed at preserving their solvency, rather than their financial stability.
  • There are no uniform, consistent credit, capital, and financial strength standards.
    • Recognizing this, the New York insurance commissioner, Eric Dinallo—who has recently announced that he is leaving—had noted the potential need for Federal regulation with the bond insurers in the monoline industry. 
  • Importantly, due to the lack of a single regulator, the rating agencies have become the de facto regulators of our industry.

-- Statement Of Sean W. Mccarthy, President And Chief Operating Officer, Financial Security Assurance Holdings Ltd.

Insurance and Systemic Risk) - [PDF-181p, VIDEO-C-SPAN] 

  • (p184-185) - Gary Gensler (CFTC) - Second, the role that credit default swaps more broadly played, particularly credit default swaps written on asset and mortgage-backed securities.
    • Whether it was multi-sector credit default swaps written by AIG or other similar CDS written by other providers, sometimes monoline insurance like by MBIA and Amback and so forth, these products-- basically insurance--along with weak underwriting practices in the mortgage markets, and weak rating agency practices, I think all worked together in terms of promoting and facilitating, one might say amplifying, a housing bubble.  
  • (p219) - Eric Dinallo: And the Department demanded that these be set alone and called monolines.
    • And they could only do this one business. They had to be standing alone.
    • They had no access to the guarantee funds, to Government bailout.
    • And they were highly regulated with very high capital requirements and a low return on equity.
      • They weren't going to be leverage businesses.
    •  And the belief was that if they went, you didn't want them to take down the Government through the guarantee funds, or an otherwise stable insurer.
      • Is this starting to sound familiar? Okay. 
  • (p220) - Eric Dinallo - So I do think that essentially the rating agencies and the counterparties missed this.
    • And they believed that in the trillion dollar balance sheet of AIG--
  • Chairman Angelides: Somewhere, somehow, there would be money.
  • Eric Dinallo: Like it would in a monoline.
    • There's tons of money in a monoline, and it comes up to meet the obligations. 

2010 0701- FCIC - Hearing - 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel - [PDF-313p - VIDEO-CSPAN]