The Senate, they say, is obliged to investigate such matters when a carrier "seeks approval to restructure itself in a way that could negatively impact policyholders and/or customers."

The senators say they will continue to monitor events and "take action if necessary."

In response, MBIA issued a statement saying the announcement "reflects one of many false allegations by the banks that we will address in the course of the Article 78 hearings that began earlier this week."

MBIA says the insurance department, now part of the Department of Financial Services, had "full and unlimited access to information in connection with their evaluation of transformation."

MBIA adds, "We remain confident that the court will uphold the New York State Insurance Department's approval of transformation in the Article 78 proceeding brought by Bank of America and other banks almost three years ago. We intend to fully cooperate should the Senate decide to proceed with any inquiry or hearings."

In 2009, New York City-based bond insurer MBIA received permission from the insurance department to split the company in two, separating its profitable portfolio of municipal bonds from its troubled structured-financial instruments.

In a hearing that began this week, the attorney for the banks argued that the restructuring should be annulled in part because the department did not see an analysis questioning the financial viability of the plan.

The hearing in Manhattan in New York State Supreme Court is expected to last four weeks.