Highlighting its growing focus on bank-affiliated brokerages, the National Association of Securities Dealers has banned the use of bank names and logos on investment sales materials.
The move, which NASD officials described as an interpretation of existing consumer-protection rules, promptly drew fire from bankers and regulators.
The prohibition hits directly at banks' efforts to integrate mutual funds into their mainstream offerings. For example, it strikes down the widespread practice of prominently using corporate logos, such as Wells Fargo & Co.'s stagecoach or Shawmut National Corp.'s Indian, on mutual fund brochures, advertisements, and prospectuses.
The American Bankers Association argued in a letter that the NASD jumped the gun by enforcing the ban while its proposal to overhaul the regulation of bankaffiliated brokerages is still pending. The NASD is expected to issue that proposal for public comment early next year.
Some banks, including First Interstate Bancorp, have already encountered the prohibition. Michael Johnson, senior vice president at the Los Angeles banking company, said the NASD recently rejected a brochure the banking company submitted for review on grounds that the bank's name was displayed too prominently.
A top aide to the Comptroller of the Currency, meanwhile, expressed dismay that the NASD had imposed the ban without consulting with bankers and their regulators.
"The only way to write a good rule" is with input from various parties, said the aide, David P. Apgar, senior policy adviser to Comptroller Eugene A. Ludwig.
The NASD, a self-regulatory body that sets professional standards for broker-dealers, announced the ban on the use of bank names and logos in a two-paragraph notice to members last month.
It marked the first time the NASD has specifically targeted its rules to bank brokerages. Violations of the ban could result in fines and suspensions under the NASD's rules of fair practice.
"Our concern was confusion about the nature of investment products in banks," said R. Clark Hooper, the association's vice president for advertising.
The concern has long been shared by other regulators. One of the key issues for banks that sell mutual funds is to overcome the misperception that these investments are backed by the bank and carry federal deposit insurance.
Ms. Hooper added that it was unnecessary for the NASD to seek public comment on the ban because it was simply an interpretation of an existing rule that governs communications with securities customers.
While the NASD's notice to members generally prohibits broker-dealers from using banks' names and logos on advertisements and sales literature, it provides one exception.
Bank names may appear on these materials "solely for the purpose of identifying the location where broker-dealer services are available," the notice said. The rule applies to both brokerages that are owned by banking companies and to investment products marketing firms that do business through banks.
Industry executives say the NASD is being overzealous, harming banks' efforts to offer mutual funds as part of a full array of products and services.
Cross-selling "is an important part of the business of banking," said Melanie Fein, a law partner with Arnold & Porter, Washington. "If all of a sudden customers feel they're not dealing with a bank's brokerage, they may go somewhere else."
A spokeswoman for Mellon Bank Corp. said the Pittsburgh company strongly opposes the prohibition. Mellon is concerned that it will undercut plans to cross-sell products and services with its recently-acquired mutual fund subsidiary, Dreyfus Corp.
The ABA blasted the edict in a five-page letter to John E. Pinto, the NASD's executive vice president for regulation.
"These provisions deprive bank-affiliated broker-dealers of their right to use their property -- their name and logo -- and are anti-consumer to boot," wrote Sarah A. Miller, the ABA's senior government relations counsel.
Ms. Miller said consumers would be hurt because the ban would make it difficult for banks to bundle products such as deposits, loans, credit cards, mortgages, and brokerage services.
When banks offer consumers such products in a single package, the "total all-in price" can be discounted, Ms. Miller said. She maintained that the NASD's action "has not been properly thought through."
Mr. Apgar of the Comptroller's Office said the NASD's action would unfairly force banks to downplay their role as investment managers at a time when customers are looking for the service.
"I think the NASD is forgetting banks play a crucial role in advising mutual funds," Mr. Apgar said. The rule "appears to prohibit any registered broker-dealer from presenting that information."
