WASHINGTON -- House Banking Committee Chairman Henry B. Gonzales yesterday introduced legislation that would more comprehensively regulate retail sales of mutual funds by commercial banks.

The Texas Democrat said the bill is necessary to ensure that bank customers know that mutual funds are not covered by the Federal Deposit Insurance Corp. and that purchase of the funds may entail risk to principal.

The bill, co-sponsored by Rep. Charles Schumer, D-N.Y., would require banks to tell customers outright that mutual funds are not federally insured and to sell uninsured products in a physically separate part of the bank. Banks would not be allowed to compensate tellers for steering customers to uninsured products.

"The amount of money in mutual funds has now surpassed the level of insured deposits, and a whopping 33% of all mutual funds can now be purchased through a bank," Gonzales said. "Our bill does not seek to reverse this trend.

"But insured and uninsured activities are separate," Gonzales said. "A bank's corporate structure should see them that way, and so should the consumer."

Gonzales said his bill would go further than the rules that federal banking agencies already have issued on sales of mutual funds. For example, he said, the bill would not allow a bank to share a similar name or logo with an affiliated mutual fund, or to share confidential financial information about customers without their prior written consent.

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