Amid continuing market jitters over the solvency of bondinsurers, there was word today that banks may be coming to the aidof one threatened carrier.

A source with knowledge of the situation said work is underwayfor a bailout of New York-based Ambac Financial Group by eightfinancial institutions. On Jan. 18, Fitch Ratings reduced theinsurer from “AAA” to an “AA” rating.

CNBC reported that Barclays, BNP Paribas, Citigroup, Dresdner,RBS, Societe Generale, UBS and Wachovia and are the banks involvedin negotiations that include New York State Insurance CommissionerEric Dinallo.

Mr. Dinallo released a statement saying he could not go intodetails and cautioning, as he has in the past, that any deal willnot be done quickly

“While we cannot discuss specifics, there are a number ofdevelopments relating to the bond insurers,” he said. “We arecontinuing to communicate with all parties to help them reach firmdeals as soon as possible. But as we have noted, these deals arecomplicated and take time.”

He reiterated that his department is working on a “three-pointplan: 1. Bring in new players and facilitate new capital to currentinsurers, 2. Protect policyholders by seeking solutions to thebroader problems in the bond insurance industry, 3. Rewriteregulations so they do not limit creativity essential to strongfinancial markets, but effectively prevent fraud and improperrisk.”

Yesterday, a spokesman for Mr. Dinallo, David L. Neustadt,regarding the department's discussions, said: “We've been in prettymuch constant daily discussions with all the stakeholders,insurers, banks, rating agencies, Treasury and the Fed.”

In reaction to reports of possible bank action, Tim Vandenbergof Washington Analysis, a Washington, D.C. securities research fundsupplying information hedge funds, mutual funds and brokerages,wrote that “any bailout of the bond insurers by this consortium ofbanks would be a welcome positive for the credit markets–and hencecredit-sensitive financial stocks…”

Two major rating firms yesterday took action on a variety ofbond insurers.

Standard & Poor's placed various ratings on MBIA InsuranceCorp., XL Capital Assurance Inc., XL Financial Assurance Ltd., andtheir related entities on CreditWatch with negativeimplications.

S&P lowered ratings on Financial Guaranty Insurance Co. to“AA” from “AAA,” and its senior unsecured and issuer credit ratingson FGIC Corp. to “A” from “AA.”

S&P also placed all the firm's ratings on CreditWatch withdeveloping implications.

Moody's Investors Service, which has Ambac ratings under review,announced its financial strength ratings for five firms–resulting,the firm said, from the impact on bond insurers due to lossesrelated to the residential mortgage market.

Moody's actions were as follows:

o The “Aa2″ insurance financial strength ratings of the mortgageinsurance subsidiaries of The PMI Group and “Aa3″ IFS rating ofTriad Guaranty Insurance Corporation on review for possibledowngrade.

o The “Aa2″ IFS ratings of the mortgage insurance subsidiariesof Genworth Financial and the “Aa3″ IFS rating of Republic MortgageInsurance Company were affirmed, but the rating outlooks werechanged to negative.

o The “Aa2″ financial ratings of the mortgage insurancesubsidiaries of United Guaranty Corp.–a wholly-owned subsidiary ofAmerican International Group–were affirmed with a stableoutlook.

o Also, Moody's placed the Prime-1 commercial paper rating ofMGIC Investment Corp. on review for possible downgrade. The “Aa2″IFS ratings on the main mortgage insurance subsidiaries of MGICInvestment Corp. and the “Aa3″ mortgage subsidiary ratings ofRadian Group Inc. remain on review for possible downgrade.

Moodys said during a conference call today that they plan onfinishing their reevaluation of bond insurers by the middle of themonth, and will be releasing ratings individually as they reach aconclusion.