Mr Vaughan-Smith expects banks that run the numbers to find an equity injection will work out cheaper than taking a hit to their broader bond positions.

ECONOMIST: Why monoline insurers are so important

If a government recapitalisation does prove necessary, the treasury is likely to take one of two routes: a preferred-stock investment that allows the agencies to raise more capital of their own, or nationalisation through a common-equity injection that leaves current owners with nothing, and thus offers the taxpayer a better deal.

ECONOMIST: American finance

That would have been a 10bn euro direct injection of equity capital into Cyprus's weak banks by the European Stability Mechanism (ESM).

BBC: Cyprus and the eurozone's survival