At some point, an institution becomes so shaky that it actually becomes a form of leverage with regulators. MBIA is a great case in point. The New York Times notes that in early May, MBIA promised to inject $900 million into its troubled insurance unit, which had underwritten nearly $140 billion in credit default swaps. But MBIA has yet to make the payment, and New York State regulators have to tread lightly. An overt regulatory takeover could really upend the still precarious CDS market, unleashing pain on many. The move may hurt MBIA's credibility. By not recapitalizing the unit, it certainly makes more people wonder if the bank is, in a sense, resigning itself to a bad outcome with its insurance unit. The fear is that people start demanding payment on contracts en masse. It's unclear if the contacts allow this. This is high stakes poker folks.  

For more:
- here's the Times article

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