The Federal Reserve is taking a second look at a long-standing rule that appears to forbid banks from giving discounts on retail services to customers who buy mutual funds.

If the Fed goes ahead with changes in the rule, mutual funds could become more of a mainstream banking product. Banks could offer concessions, such as free checking accounts, to customers who maintain minimum balances in bank-managed mutual funds.

Banks already link such retail products as deposits, credit. cards, and checking accounts to create "relationship" banking programs.

But bankers have hesitated including mutual funds in this mix because of "anti-tying" rules.

These rules prevent banks from requiring customers to purchase one service in order to receive another. The provisions also prohibit banks from lowering the price of a service or product for a customer who buys another one.

Some areas, like deposit services used in relationship banking, are exempt from the provisions.

But a Fed official appearing at a recent conference sponsored by the American Banker said the issue is decidedly murky for mutual funds.

"There is a question of whether or not that kind of action is a violation," said Laurie Schaffer, senior attorney with the Fed.

The reason for the uncertainty: Mutual funds could be considered a trust product. And trust services are generally exempt from anti-tying provisions, Ms. Schaffer said.

Tying is just one area the Fed, which oversees bank holding companies, is looking at in connection with bank mutual fund programs.

The agency is also reviewing its position on bank mutual fund names, Ms. Schaffer said.

The Fed is stricter than other regulatory agencies, wanting the fund's identity to bear as little resemblance as possible to the bank company.

"It's an issue a lot of people have raised," Ms. Schaffer said.

Compensation Issue

She said the agency also is reviewing its position on compensation for sales representatives.

Securities salespeople in state-chartered banks that belong to the Federal Reserve System can be paid only by salaries, not commissions.

The Fed took this position in a 1986 letter to Sovran Investment Corp., the brokerage arm of the former Sovran Financial Corp., Norfolk, Va.

The Fed is responding to requests by member banks that would like the option of paying their brokers by commission, Ms. Schaffer said.

The Fed may touch on some of these matters when it issues detailed guidance to examiners. she said, She declined to estimate when the guidelines will be released.

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