Report: Bond insurers got loophole to expand into derivatives

01/30/2008 | Reuters

Regulators are reportedly rethinking a 10-year-old loophole that allowed U.S. bond insurers to use shell companies to expand into derivatives. The insurers won permission from New York regulators in 1998 to expand from the low-margin business of providing guarantees on municipal bonds into the profitable realm of underwriting credit-default swaps on mortgage securities. Other states allowed the firms to write credit-default swaps on packages of mortgage bonds.

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