September 11, 1991
TO: BOARD OF GOVERNORS NO. 68-91
RE: HOUSE ENERGY AND COMMERCE COMMITTEE DRAFT
GLASS-STEAGALL BILL
__________________________________________________________
As previously reported (see Memo to Board of Governors No.
59-91, dated August 13, 1991), the Glass-Steagall bill reported
by the House Banking Committee has been referred to the House
Energy and Commerce Committee and three other House Committees.
The Energy and Commerce Committee has released a draft of its
revisions to the bill. As we anticipated, the revision does not
permit affiliations between banks and commercial firms and does
permit securities affiliates of commercial banks to sponsor and
underwrite mutual funds. However, the revised bill contains
virtually all of the mutual fund firewalls which have been
suggested by the Institute in the form of amendments to the
Investment Company Act of 1940. For example:
1. The bill prohibits a bank from serving as custodian for
an affiliated mutual fund except as permitted by the SEC.
(The Institute will seek a modification allowing such a
relationship with the SEC granted rule-making authority.)
2. A mutual fund is prohibited from knowingly acquiring
securities during an underwriting where the issuer will use
the proceeds to retire indebtedness owed to an affiliated
bank.
3. A mutual fund may not borrow from an affiliated bank
except as permitted by the SEC.
4. A mutual fund cannot use a name, title or logo that is
the same or similar to the name, title or logo of any
affiliated bank.
5. A bank common trust fund is required to register with
the SEC as a mutual fund unless the fund is used as an
_____ to the administration of bona fide trusts, is not
advertising, is not offered for sale to the general public
and is not charged any fees or expenses which, when added
to the compensation charged by the bank to a participant
account, would exceed the compensation that would have been
charged to such account if it had not been invested in the
fund.
6. A bank which causes a trust account to invest in the
bank's affiliated mutual fund unless the advisory fee
attributable to such investment is waived, unless the trust
beneficiary receives full disclosure regarding the second
fee and grants prior written consent.
7. A bank cannot convert a common trust fund into a mutual
fund unless the bank waives any advisory fee received from
the mutual fund, except where the trust beneficiaries
receive full disclosure and consent in writing to the
conversion.
8. A bank cannot lend money to a customer for the purpose
of purchasing shares of the bank's affiliated mutual fund.
9. A bank cannot provide to employees who provide ________
advice to the bank's affiliated mutual fund nonpublic
information involving the bank's lending activities.
10. A bank which serves as investment adviser to a mutual
fund must register as an investment adviser with the SEC
under the Investment Advisers Act of 1940.
11. The SEC is directed to conduct a study and report to
Congress as to the appropriate treatment under the
securities laws for bank collective investment funds and
separate accounts for retirement plans and of bank common
trust funds.
The Institute is meeting with members of the Energy and
Commerce Committee to express general support for these
provisions and to seek modification where appropriate.
Attached are the portions of the revised bill and the
accompanying explanation relating to mutual funds.
We will keep you advised of developments.
Matthew P. Fink
Senior Vice President and
General Counsel