Some local governments might find they do not need insurance for their municipal bonds as bond insurers emerge from their current crisis, New York’s insurance industry regulator said on Wednesday.
“Time and the market will determine the need for municipal bond insurance,” Eric Dinallo said in the text of prepared testimony to a U.S. House of Representatives hearing on the shaken municipal bond insurance sector.
“Some governments have stated recently that they believe they no longer need bond insurance… That may mean that the demand for bond insurance shrinks,” according to the prepared testimony obtained by Reuters.
Dinallo said that his steps to stabilize the bond insurance industry should buy time for stability in other sectors of the market.
Dinallo said he had misgivings about a certain type of investment keyed off collateralized debt obligations which are bundles of different types of loans.
CDO squared bonds are made up of different slices of collateralized debt obligations and Dinallo said he is considering whether bond insurance firms should be prohibited from insuring such investments.
(Reporting by Patrick Rucker; Editing by Theodore d’Afflisio)
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