Bankers' efforts to flex their muscles in the mutual fund business are getting a boost from the nation's largest fund trade group.
The Investment Company Institute last week urged the Federal Reserve Board to permit bank holding companies and the mutual funds they operate to share directors. The group made its request in a letter it filed last week in response to a proposal by the Fed to loosen restrictions under Regulation R.
"These prohibitions are no longer needed to address policy objectives and concerns such as protection of shareholders from undue influence from banks," said a spokesman for the group.
Regulation R prohibits bank holding company directors, officers, and employees from working for a company involved in securities activities that banks are generally prohibited from conducting.
In June, the Fed proposed scrapping some of those restrictions to allow bank holding companies to put their own representatives on the boards of the mutual funds they operate. The central bank accepted comments on the proposal through late July.
In its eight-page letter, the trade group not only supported the Fed's proposal, but suggested that it loosen Reg R even further and allow bank and bank holding company employees to serve on the boards of all mutual funds - whether the funds are advised by the banks' subsidiaries or by completely unaffiliated companies.
If bankers are prohibited from serving mutual fund directors, the effect of Reg R is to "artificially restrict the supply of qualified personnel available to the banking and mutual fund industries," Investment Company Institute general counsel Paul Schott Stevens wrote in his letter to the Fed.
Bank Securities Association general counsel Robert Kurucza said his group is poised to submit a similar proposal.
Mr. Kurucza, a law partner at Morrison & Foerster in Washington, said it is high time to "permit banking organizations to be on equal footing with their insurance and brokerage industry counterparts when it comes to personnel matters."
