Securities Firms Lobby to Kill Bank Trust Ads
The securities industry is up in arms over a federal proposal that would permit banks to advertise a trust service that resembles a mutual fund.
Under the draft proposal being considered by federal bank regulators, banks for the first time could mass market so-called mutual trusts, which consist of funds from a group of individuals that a bank pools and invests in the stock market.
The pooled trust funds can earn a higher return than smaller sums of money. Mutual funds--which collect money from investors and put it in the stock or money markets--are based on the same principle, but investors can add to or withdraw their money from the funds much more easily than they can under a trust agreement.
Federal law bars banks from offering mutual funds. But banks can act as trustees to offer pooled investments in the stock market as long as the banks do not advertise the service. The mutual fund industry is afraid that lifting the advertising ban would be prelude to allowing banks to offer mutual funds of all types.
The Office of the Comptroller of the Currency, a key federal bank regulator, has drafted a plan to allow advertising of the mutual trust funds, but has not yet formally proposed it.
Nonetheless, the mutual fund industry has been working the halls of Congress trying to kill the draft before it becomes a formal proposal.
Two weeks ago, Rep. John Dingell (D-Mich.) sent a letter to the Securities and Exchange Commission saying Congress intended ads for pooled trust funds to be banned and asking what action the SEC would take if the comptroller allows ads.
Dingell, chairman of the House Energy and Commerce Committee, which oversees the securities industry, also said that the comptroller’s proposal was not in consumers’ interest.
The debate comes as Congress is considering deregulating the financial service industry by allowing banks greater freedom to sell securities services, including mutual funds.
David Silver, president of the Investment Company Institute--the trade group of the mutual fund industry--said the bill passed by the Senate to widen bank activities would require banks to conduct securities operations through affiliates regulated by the SEC. The comptroller’s plan, he said, would subvert that objective.
Some financial industry officials said the protest over the comptroller’s draft proposal was intended to embarrass the regulators for proposing such a rule change while Congress debates the same issue, and thus to decrease chances for legislation this year to extend banking powers.
