WASHINGTON - The mood at the Bank Securities Association conference on proprietary products earlier this week was sober.

That's an adjustment from the attitude a few years back, when mutual funds were viewed by many bankers as cash cows ready to be milked.

"I usually start off these talks by saying the mutual fund industry is robust," said Kathy L. Anderson, a partner at KPMG Peat Marwick, New York. "Today I've decided to say that it is still growing."

But while the tone might have been more subdued than in past years, many in attendance were actively discussing the future of banks in the investments business.

Much of the talk at the conference centered on the looming Glass- Steagall reform, and the directions regulators were taking in regard to investment sales by banks.

Of particular concern to some was the role of banks as purveyors of insurance products.

Noise from Capitol Hill suggests that it will be an uphill battle for supporters of proposals now before Congress to allow banks to affiliate themselves with insurance companies.

Robert Kurucza, a partner with the Washington-based law firm of Morrison & Foerster, pointed a finger at the insurance industry, which has been lobbying hard against the proposals.

"Our insurance industry friends are well involved in the debate, and it's still unclear what dynamic we will have once the debate reaches the floor," he said.

Alluding to a recent Supreme Court decision in favor of banks selling annuities, Mr. Kurucza added that the insurance industry is "keenly interested that there be no more incursion on their turf."

Regulators speaking at the conference reiterated concerns about bank employees selling mutual funds, and seemed no closer to a consensus on how these employees should be trained and licensed.

Mr. Kurucza said that the dispute hinders many banks' efforts to become one-stop shopping centers for financial and investment advice.

Even so, many banks are finding it difficult to run mutual funds profitably. At a workshop on proprietary mutual funds, all the buzz was about master-feeder arrangements. These arrangements allow banks, the feeders, to pool their mutual fund assets so they can be run by an outside manager, the master.

The question was, why haven't master-feeder programs - and their trademarked cousins, hub-and-spoke - taken off?

Gregory R. Knopf, managing director for San Francisco-based Union Bank's Stepstone Funds, said it comes down to "ego."

"Most banks that have gotten into this business are reluctant to let go of control of these funds," Mr. Knopf said.

He added that "when banks see that you don't have to manufacture everything you sell, then we'll see this (industry) grow."

But while master-feeder structures are supposed to be a more cost efficient way to do business, many bankers here said the arrangements have yet to live up to that promise.

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