Verbatim: K.C. Fed Offers a Snapshot Of Bank Investment Sales

If there's one thing economists love, it's having new data to crunch. So in the year and a half since banks were required to include mutual fund and annuity sales data on quarterly call reports, banking economists have been having a field day.

The data, while imperfect, provide a yardstick for measuring banks' progress in the nascent field of selling and managing investments.

The latest researcher to weigh in with a study is Corey M. Koenig, assistant economist at the Federal Reserve Bank of Kansas City. His report dissects the sales scene in the 10th Federal Reserve District: Colorado, Kansas, western Missouri, Nebraska, northern New Mexico, Oklahoma, and Wyoming. His findings, published in the third-quarter issue of the Kansas City Fed's Regional Economic Digest, are excerpted here.

The pattern of mutual fund and annuity sales was similar for banks in the 10th district states and across the nation in the first quarter of 1995. In district states, 21% of banks sold mutual funds or annuities, while 23% of banks across the nation sold these investments.

Money market mutual funds accounted for the vast majority of sales in district states and the nation in the first quarter of 1995 - about 92% for both groups. Equity mutual funds, debt mutual funds, and annuities each accounted for only about 2% of total sales.

(However,) the heavy concentration of money market sales is somewhat inflated. Banks report only gross sales of funds, and do not account for redemptions, a practice that overstates money market mutual funds due to daily movement in and out of these funds.

The fee income from the sale of mutual funds and annuities remained low for both district banks and U.S. banks in the first quarter. Mutual fund and annuity fee income accounted for only about 2% of total fee income. However, 17% of the district banks that sold mutual funds or annuities had ratios from 5% to 30%.

While large banks sold the vast majority of funds, the income from the sale of funds was greater as a percent of total fee income for small banks. In addition, small banks sold a much higher percent of annuities, equity funds, and debt funds as a percent of total sales.

Only 14% of small banks (assets less than $100 million) sold mutual funds or annuities in the first quarter. Annuities accounted for 42% of total sales, while money market funds accounted for 19%, equity funds 17%, and debt funds 13%. Income from the sale of mutual funds and annuities averaged 3.3% of total fee income.

Among medium-size banks (assets of $100 million to $1 billion), 52% sold mutual funds or annuities in the first quarter. Money market funds dominated sales for this group, at 83%. Equity fund, debt fund, and annuity sales each made up less than 10% of total sales. Fee income from the sale of mutual funds and annuities was only 1.8% of total fee income.

About 83% of large banks (assets more than $1 billion) sold mutual funds or annuities, and accounted for 90% of all mutual fund and annuity sales by banks in the district. Income from mutual fund and annuity sales was only 2.2% of total fee income for large banks. Only two large banks in the district had ratios greater than 10%.

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