Insurers have been thought of as the "invisible bankers," to cite the title of the 1982 Andrew Tobias book, quietly and profitably providing a bulwark against risks.

But the insurance business has changed in recent years, with some insurers sharply increasing their tolerance for risk and loading on collateralized-debt obligations and other arcane debt investments.

Now one big insurer of bonds is teetering on the brink, and some banks and many municipalities will face some ugly public exposure.

Standard & Poor's slashed its credit rating on bond insurer ACA Financial to CCC, or junk status, from A, and lowered ratings on nearly 3,000 municipal bonds as a result.

Peter Schiff, chief executive of Euro Pacific Capital, told the Associated Press, "Many municipalities get high credit ratings because their bonds are insured. Higher borrowing costs for cities will force them to charge higher property taxes, which will increase the strain on consumers. And some cities may be shut out of the credit markets."

Canadian Imperial Bank of Commerce today confirmed what Jonathan Weil suspected last week in a column for Bloomberg News: that ACA is a hedge counterparty to $3.5 billion in subprime exposure. The Canadian bank added that there was "a reasonably high probability that it will incur a large charge" in its first-quarter results.

ACA is also believed to be a counterparty to about $5 billion of C.D.O. debt held by Merrill Lynch.

Vikas Bajaj and Gretchen Morgenson in the New York Times report that Merrill, Bear Stearns, and other banks are in talks to bail out ACA.

The Times says, "The troubles at ACA could also serve as the first real test for credit default swaps, the tradable insurance contracts used by investors to protect, or hedge, against default on bonds."

S&P affirmed the triple-A ratings of the leading bond insurers, MBIA and Ambac, but also gave them "negative" outlooks.