Banks and other investors face a bill of more than $1bn after a large US bond insurer became the first since the credit crisis struck to cease paying out claims, an event expected to trigger payouts on billions of dollars of credit derivatives.

Insurance regulators forced Syncora, the insurer that is better known under its former name SCA, to stop paying claims this week so it could try to negotiate an agreement with banks to reduce its liabilities sufficiently to manage future claims.