Few companies have had as difficult a time as the muni insurers during the past 12 months. Their stock prices fell sharply amid deteriorating subprime and CDO conditions. In addition, their AAA ratings have been threatened. To shore up their capital cushion and protect ratings, insurers have sought capital and reinsurance. Market conditions have hindered the ability of the insurers to raise capital.

Difficulty in raising capital and the deterioration in the housing market have resulted in downgrades and warnings by the ratings agencies.

It is still surprising to see the range of perspectives among bankers as to what they expect from their asset/liability committee (ALCO). For many banks, ALCO is strictly a financial reporting process focused on regulatory appeasement. At the other end of the spectrum are those banks that view ALCO as a holistic, integrated risk management process focused on managing all the risk/return aspects of the balance sheet?

Preparing for the worst, the FDIC has proposed regulations that would improve the process for identifying uninsured depositors at larger institutions in the event of a failure. The agency says the change will enhance its ability to make funds promptly available to insured deposit customers “in the unlikely event that a large financial institution is closed.”

Bankers are responding to the current economic situation — call it a recession or not, we’ll know that later — but not necessarily in the way Washington would prefer. While Congress and the regulators would like to encourage more lending, bankers are urgently tightening the screws, according to the Federal Reserve Board’s recent Senior Loan Officer Opinion Survey. (Fifty-six domestic and 23 foreign institutions participated in the survey.)