April 25, 1994
TO: BOARD OF GOVERNORS NO. 35-94
RE: BANK-LIKE REGULATION OF MUTUAL FUNDS
__________________________________________________________
In an earlier memo (See Institute Memo to Board of Governors
No. 32-94, dated April 15, 1994), we reported on the April 14
hearing on functional regulation legislation before the House
Telecommunications and Finance Subcommittee. At the hearing
banking regulators, in contrast to Institute and SEC witnesses,
argued against regulation by the SEC of bank securities activities.
More importantly, the bank regulators, argued for extensive
authority to regulate not only securities activities of banks, but
also to regulate "depository activities" of nondepositories.
Both, Comptroller of the Currency Ludwig and FRB Governor John
LaWare, cited cash management accounts, savings accounts in the
form of mutual fund shares, and access to the FRB discount window
as appropriate regulatory opportunities. Additionally, Mr. Ludwig
noted the absence of reserve requirements on securities firms
transaction accounts and the lack of applicability of social-
responsibility laws as competitive advantages enjoyed by mutual
funds and securities firms.
Both Messrs. Ludwig and LaWare also objected to any
legislation that does not propose a broad, comprehensive approach
that permits banking organizations to engage in the full range of
securities activities that nonbank firms may conduct and that
provides exceptions from SEC regulation so as not to curtail
certain traditional bank securities activities.
Statements of Messrs. Ludwig and LaWare are attached. We will
keep you informed as this matter develops.
Matthew P. Fink
Attachments