Ms. Clark outlined the growing role of banks in the mutual fund business in recent speech at an American Banker conference.

In the excerpts that follow, she examines why banks are moving into mutual funds.

In the second part of this article, which will appear shortly, she looks at how banks' expanding role in mutual fund sales has help fueled the fund industry's dramatic growth.

There are dozens of reasons banks are offering or might want to offer mutual funds, but three seem to dominate discussion.

The first -- to stem disintermediation -- relates to what the doomsayers are saying: Banks are offering mutual funds as a defensive strategy aimed at protecting their turf against invasion by nonbank competitors.

Nonbank competition is nothing new. Banks' market share, especially on the asset side, has been eroding for years. Aided by a low interest rate environment, however, mutual funds and other financial instruments are now successfully competing with banks on the liabilities side. Offering mutual funds is a way to keep money and customers coming into the bank.

Going on the Offensive

The second major reason banks are getting into this line of business is an offensive strategy, if you will. Many banks view the provision of mutual funds as a natural extension of the full-service banking concept. If you want a complete customer relationship, you need to offer all or most of the products customers want.

Demographic data tell us that baby boomers, who make up a large portion of banks' customer base, are moving from their borrowing and spending years into saving and investing years.

It's only natural and appropriate that forward-looking bankers change their product offerings as the needs of their customers change. One bank consulting firm has estimated that mutual fund holdings will grow at a 15% pace for the rest of the 1900s vs. a 4% growth rate for bank deposits. Many bankers want to be in a position to get part of that 15% as well as the 4%.

Finally, the push by banks to get into the mutual fund business appears to be part of a larger secular trend toward deriving a greater portion of earnings from noninterest sources. Even the very best asset/liability managers have difficulty keeping the net interest margin stable, or better yet, growing, in an environment where interest rates change in often unpredictable ways.

Bright Picture

Earnings stability keeps bank management and shareholders and regulators happy. By putting more resources into "nontraditional" bank activities, banks become less dependent on uncontrollable factors, such as the business cycle.

Not only do banks have plenty of motives for getting into the mutual fund business, there are also plenty of reasons to think banks will succeed. Banks have a number of built-in advantages.

Banks -- especially community banks -- have long-standing customer bases and relationships that are especially valuable when selling a new product.

Closely related to these strong customer relationships is the reputation banks enjoy for safety and soundness -- bankers enjoy a great level of trust, and not just because that FDIC sticker is displayed in the window.

Research also indicates that first-timers are willing to pay for investment advice. And contrary to what many industry observers think, banks already have a great deal of experience in this arena through trust operations.

Big Shift

Running a successful trust department does not ensure that a bank can operate a successful retail delivery system of similar products, but it's a good start.

It's difficult to overestimate the effect mutual funds have had on Americans' savings and investment patterns, especially in the last several years.

There are more than 4,000 mutual funds currently in existence -- more funds than all the stocks listed on all of the exchanges in the United States.

These 4,000-plus funds have more than $2 trillion in assets -- that's more money than what's held in all the time and savings accounts at U.S. banks.

By the end of this year, it's expected that mutual fund assets will exceed all commercial bank deposits, which totaled $2.74 trillion at the end of 1993.

According to the Investment Company Institute, the mutual fund industry's trade group, about 30% of all U.S. households currently have mutual fund accounts.

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