Royal Bank of Scotland and Barclays have joined forces with six other banks to work on a $15 billion (£7.6 billion) rescue plan for the struggling mortgage bond insurance industry. The consortium will focus on Ambac, America’s second-biggest insurer, before addressing concerns at other insurance firms.

The consortium, which includes Citigroup, Société Générale and UBS, is working with the New York Insurance Department, the state’s industry regulator, to bail out bond insurers, who are facing multibillion-dollar claims in the sub-prime mortgage crisis. Although the plans are at an early stage, they are most likely to involve the consortium raising $15 billion to inject into the handful of insurers that dominate the market.

Ambac is set to be the first recipient of rescue funding because it is the most in need of capital after failing to raise $1 billion of new funds last month. Once the consortium has addressed Ambac’s capital shortfall, it will help to prop up other bond insurers.

Although MBIA, the biggest bond insurer, potentially faces even larger claims, it is not thought to be among the consortium’s top priorities as it recently secured a $2 billion capital injection, which it insists is enough to maintain its top credit rating. On Thursday Standard & Poor’s put the AAA-rated MBIA, which announced a $2.3 billion loss for the fourth quarter, on review for a potential downgrade.

The insurers guarantee the interest and principal payments on the securities that they underwrite in the event of a default by the issuer. They face a huge jump in claims on the mortgage bonds they underwrite as defaults surge on the underlying homeloans. Fears are mounting that the insurers will not be able to meet the expected jump in claims, a development that would wipe tens of billions of dollars off the value of mortgage bonds that have suffered huge declines already.

The bond insurers traditionally have had the top AAA credit rating, which is key to their ability to attract new underwriting business. This year Ambac, Financial Guaranty and Security Capital Assurance have lost their top rating.

The insurers desperately need cash to meet the expected surge in claims as well as to regain or preserve their AAA ratings. Analysts say that bond insurers will not be able to survive without the top credit rating as policy-holders need to have absolute assurance that the underwriter has the ability to meet any claims. If they are to survive, the insurers need multi-billion-dollar cash injections or to find a buyer, analysts argue.

The consortium, which also includes BNP Paribas, Wachovia and Dresdner, believes that it would be cheaper to prop up the confidence of bond investors by buoying up its underwriters. However, experts believe a cash injection of as much as $200 billion, not $15 billion, is needed.

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