Banks and mutual funds:

A functional approach to reform

Jane E. Willis*
Columbia Business Law Review, No. 221 |1995

* J.D., magna cum laude 1994, Harvard Law School; law clerk to Honorable Robert E. Keeton, U.S. District Court for the District of Massachusetts. I am grateful for the guidance of Professor Howell Jackson and members of the law firm of Ropes & Gray. The opinions expressed in this Article do not represent the views of Ropes & Gray or any of its members.

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… The mutual fund industry grew rapidly during the 1980s. … For example, depository institution regulation is duplicative because different federal agencies govern differently-chartered institutions that perform the same basic functions of deposit taking and lending, as well as certain investor services. … This restriction decreases the efficiency of bank sales programs because a customer who is comparing certificates of deposit to mutual funds would have to speak to two different employees in two different locations. …Having discussed each of the hazards identified in Camp, it is clear that it is no more “hazardous” to a bank’s health or to its consumers for a bank affiliate to act as a mutual fund distributor than it is for a bank or bank affiliate to engage in investment advisory activities. … Because acting as a mutual fund distributor does not constitute firm-commitment underwriting, the agencies could conclude that the Glass-Steagall Act does not prohibit a bank or bank affiliate from distributing mutual funds. …Bank mutual fund activity is just one example of the need for functional regulation. …

n160 If one does not think that banks can succeed in the mutual fund business in general, then allowing banks to distribute mutual funds is just a further step in the wrong direction. Whether bank mutual funds will be successful is an open question. See Alyssa A. Lappen, Funds Follies, Institutional Investor, Oct. 1993, at 39 (“A pressing concern is quite simply, whether the nation’s banks, as a group, have the financial — or intellectual — wherewithal to succeed in the ferociously competitive mutual fund business.”); id. at 40 (quoting David Rosen, Executive Vice President of Republic New York Corp. as saying, “There is too much bank mutual fund product out there, you have to ask whether they will all survive.”); Waggoner, supra note 6 (“Some banks may find themselves in a business that’s far tougher — and more expensive -than they imagined. ‘It’s a lemming phenomenon . . . a lot of banks just don’t know what they’re doing.'”).
n164 Id.; see also Lappen, supra note 160 (“You shouldn’t start a money market fund if you think that maximum assets will be $ 200 million, because it will never be profitable.”).
n166 About 13% of the assets of proprietary bank mutual funds have come from commingled trusts. See Lappen, supra note 160 (“When banks say that they have sold this many [dollars in their] funds, they are fibbing. . . . They have used Hamburger Helper.”).
n168 Lappen, supra note 160. Accord Telephone Interview with Mary McArty, Consultant, Cerulli Associates (Mar. 4, 1994).
n186 See Lappen, supra note 160 (noting trend towards fee based income); Jay G. Baris, Issues Arise on Naming of Mutuals, Nat’l L.J., Aug. 16, 1993, at 27 (“With traditional asset bases dwindling, banks must seek non-traditional alternatives to bolster regulatory net worth and sagging profits.”).
n190 See Lappen, supra note 160 (attributing the term to an unnamed consultant).

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Alyssa A. Lappen is a U.S.-based investigative journalist. She is the former Managing Editor at the Leeb Group (2012-2017); a former Senior Fellow of the American Center for Democracy (2005-2008); and a former Senior Editor of Institutional Investor (1993-1999), Working Woman (1991-1993) and Corporate Finance (1991). She served six of her 12 years at Forbes (1978-1990) as an Associate Editor. Ms. Lappen was also a staff reporter at The New Haven Register (1975-1977). During a decade as a freelance, her work appeared in Big Peace, Pajamas Media, Front Page Magazine, American Thinker, Right Side News, Family Security Matters, the Washington Times and many other Internet and print journals. Ms. Lappen also contributed to the Terror Finance Blog, among others. She supports the right of journalists worldwide to write without fear or restriction on politics, governments, international affairs, terrorism, terror financing and religious support for terrorism, among other subjects. Ms. Lappen is also an accomplished poet. Her first full-length collection, The Minstrel's Song, was published by Cross-Cultural Communications in April 2015. Her poems have been published in the 2nd 2007 edition of Blood to Remember: American Poets on the Holocaust and both 2007 issues of Wales' award-winning Seventh Quarry: Swansea Poetry Magazine. Dozens of her poems have appeared in print and online literary journals and books. She won the 2000 annual Ruah: A Journal of Spiritual Poetry chapbook award and has received a Harvard Summer Poetry Prize and several honorable mentions.

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