Banks' mutual fund business could end up losing more than they gain from repeal of the Glass-Steagall Act.

That's because over the past 13 years banks have won the right to do just about everything in retail brokerage and mutual funds that nonbanks can do.

As a result, removal of the remaining prohibitions on bank fund activities would be virtually meaningless to most institutions.

But adoption of a new regulatory regime could be onerous. Indeed, it could result in new rules more irksome to banks than those that are replaced, experts warn.

"The fact is, there's very little to be incrementally gained from a Glass-Steagall perspective," said Robert M. Kurucza, a partner in Washington with the law firm of Morrison & Foerster.

This is in stark contrast to the investment banking business, where banks could gain enormous new powers if Glass-Steagall restrictions were repealed.

The list of powers that banks have won in the mutual fund and retail brokerage business is extensive.

Previously, banks were restricted to offering brokerage services only as an accommodation to bank customers. In 1982, however, they won the right to sell discount brokerage services to both customers and noncustomers.

Courts and regulators subsequently authorized bank acquisitions of discount brokers, bank operation of full-service brokerages, and bank sales of mutual funds managed by banks and other companies.

About the only things banks can't yet do in the mutual fund business is underwrite and distribute funds or appoint their own employees as fund officers or directors.

These barriers have proved only minor irritants, bankers say, since a system has evolved in which banks employ outside companies to perform the proscribed functions.

Often these so-called distributors do virtually nothing but file paperwork with securities regulators and put their names on distribution contracts between mutual funds and the banks that sell the funds.

"In the mutual fund business, the whole thing is largely over," said Matthew P. Fink, president of the Investment Company Institute, a mutual fund trade group. He figures that banks have 95% of all mutual fund powers.

The last 5% would be granted to banks under Glass-Steagall reforms currently being considered.

But lawyers specializing in bank securities activities warned that reform could come with offsetting obligations.

One possibility is that banks may have to put into separate units mutual fund sales functions that are now integrated into their retail banking divisions.

These mutual fund units could be subject to so-called firewalls that require them to be separately capitalized and managed.

Likewise, mutual fund portfolio management might have to be removed from the trust departments in which most institutions house them and put into the mutual fund units.

Banks might also have to put mutual fund administration and custody operations into the units.

Many bankers said that, while they are still evaluating the reform proposals, they seriously question whether such tradeoffs would be worthwhile.

"When we look at all the things a bank is allowed to do, the additional powers don't create a lot of opportunity," said Thomas K. Whitford, a senior vice president in Philadelphia at PNC Bank Corp.'s investment management unit.

Meanwhile, if reform goes through, it could prove disastrous for bank fund distributors because it would eliminate the main reason for their existence.

Most distributors say they would find other ways to assist banks - for example, offering sales consultations or distributing funds for banks too small, or simply unwilling, to handle it themselves. But some experts doubt there would be much demand for these services.

"There's no particular reason for them to be there," said a manager of a leading bank mutual fund complex, who asked not to be named. "They have not added that much value."

The executive went on to say that his company would almost certainly stop using an outside distributor if it legally could. He also raised serious questions about the wisdom of multimillion-dollar acquisitions of fund distributors being planned by First Data Corp., Hackensack, N.J., and Bisys Group Inc., Little Falls, N.J.

The executive said First Data and Bisys could end up with declining businesses if Glass-Steagall reform goes through.

For his part, Larry C. Renfro, chief executive of 440 Financial Group - the distributor First Data is buying - predicted his company would continue growing even if Glass-Steagall is repealed.

"Good business partners are always going to be needed," he said. "I think the business is going to change as the regulations change."

Debra Cope contributed to this article.

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