New York's recently-created Department of Financial Services (a merger of the state's banking and insurance commissions) was supposed to file a response on November 23 to claims by a coalition of banks that it improperly approved MBIA's 2009 restructuring. The response wasn't filed. Rather than go on the record with the insurance department's account of what the bond insurer said as it sought state permission to proceed with its $5 billion restructuring, the new financial services superintendent, Benjamin Lawsky, is pushing MBIA and the banks to settle the case. The department, which is a co-defendant with MBIA in the banks' regulatory case, now has until Dec. 30 to disclose what it knew and when it knew it.

But from what I'm hearing, Lawsky will have to work powerful magic to get all of the seven remaining banks in the coalition to reach deals with MBIA, unless MBIA agrees to tap some of the $5 billion that went with its municipal bond business when it spun off the division that insured complex financial instruments. Two sources on the bank side of the litigation told me that the banks have not met with MBIA as a group (although both sides have met with Lawsky). They also asserted that the bond insurer's recent settlements with Royal Bank of Scotland and Wells Fargo -- as well as insurance claim obligations that drastically exceeded MBIA's projections -- have left MBIA Insurance without enough cash to make deals with all of the remaining banks. ...Read the whole article here.