WASHINGTON — When President Clinton signed financial reform into law last year, many observers equated it with ringing a dinner bell: They expected banking industry dealmakers to belly up to the financial services buffet and gorge themselves on formerly forbidden fruit, particularly insurance companies.

But far from indulging themselves unrestrainedly as many had foreseen, banks have been downright temperate when it comes to entering insurance underwriting, and insurance companies have been only slightly less restrained.

“Those that are getting into it, as far as I can tell, are doing it in digestible bites,” said Washington lawyer Brian W. Smith, a partner in the firm of Mayer, Brown & Platt.

Mr. Smith, who is advising the insurance giant MetLife on its pending acquisition of a small New Jersey bank, said other financial institutions would make that deal a model.

Insurance companies, he said, are approaching his firm to sniff out the market for similar acquisition candidates. “Clients are talking to us about how to find a bank that is new and that doesn’t have a lot of legacy systems that they have committed hundreds of millions of dollars to,” he said.

The strategy, he said, is “to acquire a small institution that is relatively young, doesn’t have a lot of history, has a whistle-clean portfolio of loans and investments. One that doesn’t have a lot of problem loans, or a lot of investments that are under water, so that when you walk in you don’t inherit somebody else’s financial problems.”

The principal concerns, he said, are about adjusting to new regulatory regimes and a general lack of familiarity with each other’s business.

“Banks have complained for years about their multiple regulators,” Mr. Smith said, “but no bank has ever had 51 separate state regulators that required it, as they do in the insurance business, to file policies, forms, and advertising before they can be used and who can hold up their business if they don’t like what they’ve done.”

On the insurance side, there is ample confusion about the post-Gramm-Leach-Bliley regulatory structure, in which the Federal Reserve Board is the “umbrella regulator” of all financial holding companies but individual lines of business are regulated by “functional regulators.”

“No one quite knows how functional regulation will really work,” said Mr. Smith.

The result, he said, is caution among institutions experimenting with the new powers. “We will see relatively small transactions in size and business plans that are modest and moderate.”

A buyer “wants narrowly focused, somewhat new institutions with limited problems, and strong management if you can get it,” he said. “You don’t want management egos and lines of business that you don’t understand and can’t manage.”

For the most part, he said, buyers are much more likely to be midsize to large insurance companies because they are more apt to benefit from acquiring a small bank than a large bank is to benefit from owning a small insurance firm.

“The insurance companies’ model is that they don’t have any real branch network,” he said. “They don’t need brick and mortar because they have customers all over the country and they have been dealing with those customers through the mail, call centers, and now the Internet.” As a result, he said, they are well-positioned to market banking services through similar channels.

For banks, the ideal partner is much harder to describe.

“Banks have the bricks and mortar, and they are trying desperately to move from that to remote delivery,” he said. “So a nationwide customer base helps them with that — especially a customer base that isn’t used to walking into a branch to make transactions.”

But that requirement virtually eliminates the possibility of buying a small, easily assimilated insurance company, which is unlikely to have a nationwide customer base.

“There aren’t that many small insurance companies that have the market reach to make it worthwhile,” he said. “It seems to me that the model works better the other way.”

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