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) -- Signs of life in the M&A market for even healthy banks wasn't enough to prop up the sector's stock prices on Friday.

The KBW Bank Index was shedding 0.7% at 44.70 by late morning, as continued worries about the pace of economic recovery outweighed any positivity. Big bank stocks were mixed. On the bearish side,

Bank of America

(BAC) - Get Bank of America Corporation Report

was down 1.1% at $12.88,


(C) - Get Citigroup Inc. Report

was down 0.8% at $3.76 and

Morgan Stanley

(MS) - Get Morgan Stanley Report

was down 1% at $25.74. Others were slightly bullish, with

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

up 0.8% at $24.62,

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Goldman Sachs

(GS) - Get Goldman Sachs Group Inc. (The) Report

up 0.9% at $148.31 and

JPMorgan Chase

(JPM) - Get JP Morgan Chase & Co. Report

up 0.4% at $37.20.

The biggest news in the broader bank sector continued to be

First Niagara Financial's


announcement on Thursday that it would acquire competing regional lender NewAlliance Bancshares for $1.5 billion.

The deal is important primarily because it's not a big, stable bank swooping in to capture a struggling competitor on the cheap - quite the contrary. The deal is delivering NewAlliance shareholders a 24% premium to its closing price the previous day. As the biggest bank acquisition announced in dollar terms in nearly two years, it also shows that the industry may finally be well-capitalized enough to seize on opportunities.

It also raises questions about what will happen to weak banks that are struggling to survive. The Federal Deposit Insurance Corp. has been handling hundreds of small-bank failures over the past couple of years. While regulators prefer domestic, intra-industry M&A,

private equity players and foreign banks have been more interested in FDIC-supported deals. Banks around the country that managed to avoid the subprime explosion

have little interest in taking bad loans onto their balance sheets through acquisitions, even with federal assistance.

First Niagara has been on an

aggressive acquisition path for awhile now, ever since

repaying bailout funds in the spring of 2009. Another deal that's been whispered about but not confirmed is

Banco Santander

( STD) potentially acquiring

M&T Bank

(MTB) - Get M&T Bank Corporation Report


Elsewhere in the financial sector, a media report on life insurance benefits has set off a storm of negative attention.

New York Attorney General Andrew Cuomo is investigating the practices of several insurers, including

American International Group

(AIG) - Get American International Group Inc. Report

, Lincoln National,



, CNO Financial Group and Principal Financial Group after a


report indicating that the families of U.S. soldiers who died in combat feel misled by death-benefits practices.

Insurers place death those funds in so-called "checkbook" accounts that tend to offer lower interest rates than bank accounts, and don't allow customers to directly withdraw money. Insurers use the funds to generate profits for their own bottom line until customers decide what to do with them.

A report from Bernstein analysts indicates that insurers' profits aren't heavily weighted in checkbook accounts. They estimate that, if insurers were to end the practice send a lump-sum check to beneficiaries instead,


(MET) - Get MetLife Inc. Report

would see earnings per share decline by about 1.8% this year, while


(PRU) - Get Prudential Financial Inc. Report

would take a 0.7% hit, Lincoln National a 0.5% decline and

Hartford Financial

(HIG) - Get Hartford Financial Services Group Inc. (The) Report

a 0.3% drop.

AIG shares were down 0.6% at $35.33; Aetna was down 0.6% at $27.10; MetLife was dropping 1.6% at $37.33; Prudential was falling 1.8% at $51.90; and Hartford had shed 2.1% at $19.93.

-- Written by Lauren Tara LaCapra in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.