WASHINGTON -- Federal Reserve Chairman Alan Greenspan said this week that recent instances of banks pumping money into affiliated mutual funds does not appear inordinately risky.
Responding to a letter from House Banking Committee Chairman Henry B. Gonzalez, the nation's central bank chief said the Fed is reviewing seven cases where holding companies had to infuse capital into their mutual funds.
In no case was there any safety and soundness threat, he said.
"Our overall assessment of this area leads us to conclude there is not an inordinate financial risk associated with mutual fund activities of banking organizations and that none of the specific transactions we reviewed was unsafe or unsound," Mr. Greenspan said.
He added that the amounts of capital infused into the mutual funds by the holding companies were "very nominal" compared to the equity of the holding companies.
The Fed supervises bank holding companies and state member banks that act as investment advisers to mutual funds.
Rep. Gonzalez had written the letter to Mr. Greenspan in response to the collapse last month of a money market fund for community banks.