As banks stampede into the salt, of mutual funds, the securities industry tends to view the situation with mixed feelings, according to Marc Lackritz, president of the Securities Industry Association.

On one hand, broker-dealers see the banks as a new marketing outlet. On the other, they see the banks encroaching on their territory.

Most of all the securities industry perceives banks as having some special advantages - notably, Federal Deposit Insurance Corp. protection.

Mr. Lackritz, who headed the securities group's Washington office for three years before becoming president, is a Capitol Hill veteran and a former top official of the Public Securities Association.

In a recent interview with freelance writer Bill Tucker, he discussed his ideas on what hanks must do to avoid difficulties in their mutual fund operations.

Q.: What are your general thoughts about the idea of banks selling mutual funds?

LACKRITZ: It raises a whole range of concerns about making sure investors are protected.

The securities industry has a regulatory structure that has evolved over the last 53 years - the Investment Company Act, the Investment Management Act, and others.

One fundamental is to ensure that investors are adequately informed. But securities are not a federally insured product. There has never been the slightest suggestion that we are backed by the federal government.

For that reason, it's very important as more and more mutual funds are sold through the banks, that investors know the difference between a mutual fund account and a bank account.

If investors are confused or misled, it could be the taxpayers who end up bailing out the mistakes.

Q.: One bank consultant said recently, "The banks are the perfect instrument for selling mutual funds. They've built up a a vast reservoir of trust with the public." But don't the banks have this reservoir of trust precisely because they haven't been offering investments like mutual funds?

LACKRITZ: Exactly. Everything's fine when markets are going up. It's when the market turns down that people will suddenly see their mutual fund account shrink in a way their bank account never did.

Then you'll have a different scenario. People will say, "Wait a minute, I thought this was a federally insured product. I've been misled."

Q.: The banks are obviously at risk, but couldn't the securities industry could get a black eve as well? Say two or three years down the road there's a big drop in the market. Won't someone start arguing that Wall Street led these poor little banks astray and encouraged them to undertake things they couldn't handle?

LACKRITZ: I think the bigger risk is that the taxpayers will get a black eye. Or a black-and-blue wallet.

As far as the securities industry is concerned, their regulatory requirements have put them in good stead. Frankly, I think the banks have a bigger risk to their credibility. They've held themselves up as the last repository of public trust. But ultimately, my concern is for the taxpayer.

Q.: Under the existing system, though, there's no way that taxpayers could be made to bear the responsibility of bailing out the banks, is there?

LACKRITZ: There are a few conceivable scenarios. For example, in a market collapse, the banks could be hit by a wave of class-action lawsuits from investors.

A couple of big judgments could overwhelm the capital of a bank. At that point, where would the plaintiffs go to collect their judgments except to the deposit insurance trust fund? And if the FDIC couldn't cover, we'd be back where we were with the savings and loans.

Q.: What can banks do now to protect themselves?

LACKRITZ: It seems to me they ought to be pushing to make sure they have the same regulatory treatment that securities firms and mutual funds already have.

It's important that investors not be confused. For example, take the situation where the bank and the mutual fund have the same name. Is it easy for an investor to understand that the mutual fund does not have federally backed deposit insurance? There's a lot of room for confusion there.

To the extent that banks are actually selling mutual funds out of their broker-dealer affiliates, then from a regulatory standpoint, they are going to be treated similarly to securities firms. But should funds be sold by a bank teller? That produces a regulatory mismatch, because tellers are not registered and tested under the securities laws.

Q.: Are any of the banks doing it right?

LACKRITZ: A number of them are, there's no question of that. They're ensuring that there's adequate disclosure at the point of sale, adequate training for the people who are selling, and a proper relation with a brokerdealer regulated by the SEC.

In these cases, people know they're not purchasing a federally insured product.

Q.: Are there any that are doing it wrong?

LACKRITZ: I suspect there are. I don't know. I've heard enough stories and anecdotes to suspect there are.

Q.: So just having a disclaimer in fine print isn't going to help.

LACKRITZ: I'm not aware of enough of the cases to know whether fine print is adequate exposure. I don't think it is.

The difficulty here from a bank's perspective is that they don't want to scare off customers. But there are mutual fund companies that deal with this every day and there isn't any confusion. I would suggest the banks emulate the practices of the securities industry.

Q.: Can you envision some federal legislation or regulatory effort that might accomplish this?

LACKRITZ: It would take legislation, I believe, because the current structure leaves some regulatory gaps. Congressman John Dingell has just announced that he is going to be looking into this subject.

Q.: So the banks should go to Congress and say, "Would you make this safer for us?"

LACKRITZ: They should say, "Will you make sure that we're regulated in the same way that the investment companies and securities firms are already regulated?"

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