With securities regulators still months from hammering out a rule governing how banks sell mutual funds, some bankers wonder whether the market hasn't already dictated guidelines.

The National Association of Securities Dealers last week approved a rule designed to clarify for customers what bank products are insured and what are not. The rule must now get approval from the Securities and Exchange Commission-a process that, with public comment, could extend into summer.

The bank broker-dealer rule was conceived in 1994 at the urging of consumer groups, which said it was too easy for depositors to assume mutual fund losses were federally insured. By March 1996, NASD had unveiled stringent guidelines for the sale of funds through banks.

But 10 months of haggling between bankers and regulators yielded a considerably watered-down rule.

"I'm starting to wonder, by the time they come out with it, whether we'll have already adapted" many of the standards, said Jordan A. Miller, vice president and controller of Huntington Investments Co., a subsidiary of Huntington Bancshares, Columbus, Ohio.

The original draft of the rule may have drawn the most ire for its restriction on selling mutual funds at supermarket branches staffed by only one salesperson. Banks that have invested heavily in these low-cost, high- traffic branches-particularly Wells Fargo & Co. and BankAmerica Corp.- balked. That provision was among the first dropped.

What remains of NASD's bank broker-dealer rule are three main components, said Sarah A. Miller (no relation to the Huntington executive), a lawyer at the American Bankers Association:

Brochures and other product information offered by banks would include a recognizable icon-similar to the 'Equal Opportunity Lender' house logo- and the words, "not FDIC insured."

A restriction on referral fees within banks to a "nominal" amount, typically $10. In an earlier rule draft, referral fees would not have been allowed.

Confidential customer information can be shared among bank departments- unless the customer states, orally or in writing, that the bank cannot. In an earlier draft, banks could not share the information without written approval.

"The customer has to say, 'You cannot share this information,'" said ABA's Ms. Miller, who does not expect a final bank broker-dealer rule before June. "Selling (the information) would require written approval."

Mr. Miller, the Ohio banker, added: "The customer views confidentiality not with one person but with the organization."

Banks are already subject to state privacy laws, which restrict how confidential information may be used, said Melanie L. Fein, a banking attorney at the Washington, D.C., law firm of Arnold & Porter.

"Banks have been careful to comply," said Ms. Fein, whose clients include larger regional banking companies.

"NASD doesn't understand how banks work," she said. "Banks have enormous data bases," which are used to share clients among in-house departments.

For example, an investment subsidiary could get names of the parent bank's customers who have certificates of deposit maturing in August, Ms. Fein said.

Already subject to oversight by several regulatory agencies, many bankers question the need for the NASD rule. And three years after a Consumer Reports investigation of 40 banks found "bad investment advice and outright lies about safety," even consumer advocates concede banks are doing a better job of warning people about risk.

"With all the publicity and regulatory actions, banks took steps" to offer better consumer information, said Stephen Brobeck, executive director of the Consumer Federation of America, Washington.

But that hasn't gotten the NASD and SEC much closer to a resolution.

"We talk to self-regulators all the time," said John Heine, spokesman for the SEC. "We don't agree" with NASD.

Not yet, at least.

Mr. Heine said the NASD rule would likely be further modified. He refused to speculate on how long it would take the commission to act.

"If we were good at prognostication, we'd be in the markets, not regulation," said Mr. Heine.

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