Banks working on injecting up to $3bn into Ambac, the bond insurer, in the hope of staving off ratings downgrades and preventing the need for writedowns, might face further losses indirectly related to bond insurers, analysts have warned.

The latest source of concern is variable interest entities (VIEs), another three-letter acronym that now holds toxic properties. This follows the failure of municipal auctions, known as auction rate securities (ARS) in recent weeks, while collateralised debt obligations and (CDOs) collateralised loan obligations (CLOs) continue to loom over the balance sheets of banks and investors.