Royal Bank of Scotland (RBS) became the second high-profile bank to drop out of a major lawsuit challenging the transformation of bond insurer MBIA (MBIA) this past week. Court records show Royal Bank of Scotland dropped out of the suit, with both parties agreeing to take care of their own court costs and attorney fees. Wells Fargo dropped out of the same suit a few weeks ago. The suit, filed originally by 21 banking entities, challenged MBIA's plan to transform its business under New York State's article 78. The original lawsuit was filed after MBIA created a second firm using $5 billion siphoned from the company's original insurance subsidiary. Financial firms involved in the suit ended up challenging MBIA's structural transition and the New York Insurance Department's approval of the plan. The exit of Royal Bank of Scotland reduces the total number of plaintiffs challenging MBIA's transformation to seven since several others have either dropped out or merged. Plaintiffs still named in the suit include BNP Paribas, HSBC Bank USA(HBC), Merrill Lynch, Bank of America(BAC), Morgan Stanley Capital Services (MS), Natixis, Société Générale and UBS AG. Write to Kerri Panchuk.