Monolines explained

Monolines, companies that insure against the risk of a bond or other security defaulting, have in the past weeks come under fire from ratings agencies, after concerns grew over their ability to meet the obligations to the bond issuers they insure.

Some, such as ACA, Ambac and SCA, were recently downgraded, raising fears of a domino effect resulting in further downgrades and market losses for the securities they – and other monolines – guarantee.

In late January New York insurance regulator, Eric Dinallo, urged major banks to provide up to $15bn (£7.6bn) to support the monoline industry in an effort to stem the threat of additional losses for banks and other financial institutions with exposure to some of the over $2,400bn of debt guaranteed by bond insurers.

FT.com’s interactive graphic explains how monolines work and what the threat to their triple-A ratings from the credit agencies could mean for investors, banks, municipal bond issuers and the monolines themselves.