WASHINGTON - Bankers are urging the Fed to go further in a plan meant to let trustee banks invest trust proceeds in mutual funds they advise.

Under the Fed's proposal, a bank could make the purchases provided two conditions were met. First, a state law, trust agreement, or court order must allow the purchases. Second, when the trust fund was established the bank must have told the beneficiaries about its relationship with the mutual fund.

The notification requirement is part of a broader proposal to ease rules that since 1972 have prevented a bank from buying mutual funds it advises for trust accounts it manages.

Bankers, writing in comment letters that were due Feb. 2, said the notification provision just doesn't make sense.

"Firstar believes that this requirement is unnecessary and should be eliminated," wrote Joan M. Fagan, assistant general counsel at Firstar Corp., Milwaukee. "Each state has its own trust law that imposes fiduciary standards on bank trustees and that address conflicts of interest."

"This disclosure requirement would create significant administrative burdens and would defeat the intended benefits of the proposed amendment," added Eric C. Oppenheim, director of compliance and regulatory affairs at Comerica Inc.

The rule fails to explain what a bank should do with existing trust accounts, Mr. Oppenheim said. For example, a trust may benefit the next several generations of a family. How could the bank notify children not yet born?

And, the Fed rule doesn't say how a bank should notify a beneficiary, wrote Richard A. Wolf, president of First of America Investment Corp.

"Rather than preparing a separate document, it seems to us the most cost-effective way of disclosure would be an extension of the prospectus rule to such accounts," he wrote.

Sarah A. Miller, senior government relations counsel at the American Bankers Association, wrote that the notification provision appears redundant.

She said the bankers already will need either a written agreement or a court order. And, she said most states require written disclosure.

Roman J. Gerber, executive vice president at Banc One Corp., asked the Fed to make an additional change. Mr. Gerber said the rule also should apply to nonbank subsidiaries that advise investment companies.

While nearly all the bankers who commented on the proposal criticized the disclosure provision, they unanimously supported the rest of the proposal. They wrote that the new rule will allow the industry to compete better with other financial service providers.

"Therefore, it is our view that the proposed change is in the best interest of the Federal Reserve Board, ourselves, and ultimately our customers," Mr. Wolf wrote.

J.P. Morgan & Co. managing director Rachel F. Robbins urged the Fed to loosen similar regulations.

"JPM encourages the board to continue identifying prudent regulatory changes that provide greater flexibility to bank holding companies and allow them to provide services to customers in a more efficient and cost- effective manner," Ms. Robbins wrote.

According to the Fed proposal, the central bank decided 23 years ago to prevent banks from buying securities from bank-advised firms out of fear that the bank might use trust proceeds to prop up an ailing investment company artificially.

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