July 27, 1993
TO: BOARD OF GOVERNORS NO. 65-93
RE: NATIONAL JOURNAL ARTICLE ADVOCATING CRA FOR MUTUAL FUNDS
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Attached is a copy of an article from last week's National Journal, a
weekly publication targeted at Washington policy makers. The article purports
to report on an allegedly growing sentiment in favor of imposing Community
Reinvestment Act requirements on mutual funds and other non-depository financial
institutions.
The article, entitled "Make 'Em Pay", cites proponents of such a move,
including representatives of the American Bankers Association (quoted as saying
that bank practices such as redlining -- which led to the enactment of CRA --
exist "throughout the economy") and the Independent Bankers Association of
America (which reportedly has held a "brainstorming" session on how to apply CRA
to mutual funds). While the editorial tone of the article is disturbing, it
recognizes that mutual funds have different structures than banks, and quotes
several people who point out the weaknesses of arguments in favor of applying CRA
to mutual funds (including the Institute). However, the reporter tends to
dismiss these arguments. For example, in response to the argument that mutual
funds, unlike banks, do not benefit from FDIC insurance, the article states,
incorrectly, that mutual fund accounts are "protected" by SIPC.
The National Journal article follows press reports that the Treasury
Department is considering whether money market funds should be subjected to the
CRA. (See Memorandum to Board of Governors No. 53-93, dated June 9, 1993.) Most
recently, the Institute has been informed by Undersecretary Frank Newman that
Administration consideration of this issue is currently confined to a study, the
scope of which has yet to be determined. We will continue to monitor the
situation closely, take appropriate actions as events warrant and keep you
informed as developments occur.
Craig S. Tyle
Vice President - Securities
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