The turmoil in the municipal market over bond insurers’ exposure to ill-fated products derived from subprime mortgages has continued, with recent downgrades of monoline insurers suffering from severe financial deficiencies. In addition, Democratic leaders are proposing federal oversight and uniform standards for insurers, and the affected guarantors are being closely scrutinized by the Senate Banking Committee and Treasury Secretary Henry Paulson.

In the last week, both Financial Guaranty Insurance Co. and XL Capital Assurance Inc. were downgraded by Fitch Ratings after failing to address capital shortfalls of $1 billion and $2 billion, respectively, that the rating agency said the companies would need to maintain their AAA status.

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