A year or so ago, several Wall Street firms launched an attack accusing the banking industry of widespread illegal tying of its securities underwriting services to its loans.

The well-orchestrated campaign was led by a commissioner of the Securities and Exchange Commission and members of Congress. I suspect it was more than a coincidence that the effort was begun just as the Federal Reserve was deliberating ways to liberalize the rules governing bank underwriting activities.

The press played up the story, and the bank regulators launched a full-scale inquiry. The story quickly faded once the charges were proved baseless.

Bank Funds Under Fire

But the securities industry had accomplished its mission. The Fed proceeded with only a token liberalization of the underwriting rules.

It's often more effective in Washington to produce heat than light. Having mastered the technique, the securities industry is at it again.

This time the target is bank mutual fund activities. It has not gone unnoticed on Wall Street that banks are enjoying increasing success in offering this investment alternative to consumers.

So now there is a hue and cry about whether bank mutual fund customers are fully aware of what they are buying. Do they know that mutual funds are not insured? Are these investments suitable for the customers, and do they understand the risks?

The questions are not bad ones to ask in view of the huge volume of money that has been flowing into mutual funds in the past decade. But why are they being asked only of banks and their customers?

Disclosure Encouraged

Some investors in mutual funds undoubtedly do not understand the risks they are taking. All purveyors of mutual funds should adhere to proper disclosure and education practices.

My sense is that banks are generally doing a better job in this regard than are their competitors (something that seems to be confirmed in a recent SEC survey).

Certainly the bank regulators, industry leaders, and the American Bankers Association have been out front in encouraging adoption of and compliance with proper standards.

A leading regional bank recently engaged an independent firm to survey its mutual fund customers. A very high percentage (82%) said they understood their investment was not insured.

When the question was asked of only those people who invested in equity mutual funds sold by the bank, the percentage who said they understood they could lose their investment jumped to 97%.

Risk of Losing Customers

It's not realistic to expect these numbers to get much higher no matter how much disclosure or education is provided. There will always be those who ignore or choose not to believe what they are told.

Bankers know they have a lot at stake when they sell mutual funds to their customers. If the investment does poorly, it could sour a number of other, more important relationships the bank has with the customer.

I have no problem with Washington emphasizing the importance of proper disclosure and education. But the government's efforts should be focused on all sellers of mutual funds, not just the banks.

I have a great deal of difficulty understanding what the SEC brings to the party. Certainly the banking agencies have mastered far more complex subjects than how to regulate mutual fund sales. And, unlike the SEC, they have thousands of examiners to enforce the rules.

The banking industry and its regulators appear to have well in hand the issues arising from bank sales of mutual funds. Surely the SEC has more important issues on which to focus its limited resources.

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