Crisis deepens for bond insurer

The company was planning to raise $1bn (£500m) in fresh funds, to maintain its prime credit rating.

Ambac sells policies that protect banks against losses on investments backed by sub-prime mortgages.

To do that it relies on a strong credit rating and there's concern that it will lose that status without new finance.

Firms like Ambac are know as 'monoline' insurers and are at the centre of the sub-prime crisis.

The sub-prime market is focused on providing home loans to those with limited or poor credit histories.

Many of these mortgages were converted into financial instruments and sold on to investors including banks.

But a series of interest rate rises over the past two years has meant many sub-prime borrowers could no longer afford their monthly payments, causing them to default.

This led to a steep fall in the value of investments linked to sub-prime loans and has caused many banks to report massive losses.

Banks buy Ambac's insurance products as protect themselves against such losses.

But analysts are concerned that the insurers will not be able to pay out, forcing the banks to announce another big round of losses.

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