April 30, 1993
TO: BOARD OF GOVERNORS NO. 39-93
BANK INVESTMENT MANAGEMENT MEMBERS NO. 8-93
RE: FEDERAL RESERVE ORDER CONCERNING BANK ADMINISTRATION OF
MUTUAL FUNDS
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The Federal Reserve Board recently approved an application
from a bank holding company to, among other things, acquire
indirectly an investment adviser to certain mutual funds. A copy
of the Board's order is attached.
The bank holding company sought permission through its
affiliates to (1) advise certain mutual funds, (2) administer
certain mutual funds, including some funds that it advises (but
not any that are marketed primarily to customers of bank
affiliates), and (3) allow one of the affiliated administrator's
representatives to become a director of the mutual funds that it
administers (but not those that it advises). The order
reiterated the Board's position that the Glass-Steagall Act
prohibits a bank holding company (and any of its affiliates) from
acting as mutual fund distributor, but stated that the
application raises the question whether the Act permits a bank
holding company to act as administrator to mutual funds.
The Board concluded that the adviser could serve as
administrator because administrative services are primarily
ministerial or clerical and the bank holding company would not,
by virtue of its administrative services, become involved in
policy-making functions of the funds to a greater extent than
when it provides solely investment advisory services. The Board
noted that "control of the fund would continue to rest with the
board of directors of the fund, which would be independent of"
the adviser. Moreover, the holding company had committed that it
would not have any director or officer interlocks with mutual
funds to which the holding company provides both advisory and
administrative services. Finally, the administrative services
would be provided only to mutual funds in which at least a
majority of the board of directors are comprised of disinterested
individuals.
Craig S. Tyle
Vice President - Securities
Attachment