WASHINGTON - A new survey by the Securities and Exchange Commission has turned up the heat on banks to make sure they are adequately disclosing the risks of mutual funds.

The survey found that an astonishing two-thirds of people who had bought money market mutual funds at banks thought the products were federally insured.

In addition, 30% of bank mutual fund customers said they agreed with a statement that all mutual funds sold by banks - even stock and bond funds - were "federally insured like savings accounts and certificates of deposit."

The findings rocked a Senate Banking subcommittee hearing on Wednesday, and came on the heels of sharp warnings from the top regulator of national banks. The Comptroller of the Currency, Eugene A. Ludwig, told bankers earlier in the week that he was "unhappy" with disclosure efforts to date.

Legislation More Likely

The survey appeared to increase the likelihood of legislation targeting banks' burgeoning mutual fund activities.

Sen. Christopher Dodd, D-Conn., chairman of the subcommittee on securities, pronounced the findings "stunning," and said he intends to work with counterparts in the House of Representatives to remedy the consumer confusion.

SEC Chairman Arthur Levitt, who presented the survey findings in testimony to the subcommittee, pledged to work with the Comptroller's office to make banks' mutual fund disclosures more informative. Mr. Ludwig, he said, has accepted an invitation to join the SEC in conducting a more detailed survey.

Mr. Levitt emphasized that bank customers aren't alone in their confusion: 28% of all survey participants said they thought any mutual fund - regardless of where it was bought - is federally insured. He said he sees "a clear and present danger" that many Americans, through ignorance of the risks of investing, will jeopardize their savings.

Self-Policing Urged

Mr. Levitt also urged bankers to step up efforts to police themselves.

"Clearly, many investors are confused," he said. "My hope is the [banking] industry will take it upon themselves" to improve disclosure practices.

Witnesses who testified after Mr. Levitt cautioned senators against putting too much stock in the SEC survey.

"It's a very preliminary survey, with a small number of people," said James Riepe, managing director of T. Rowe Price Associates, a Baltimore-based mutual fund company.

The SEC based its findings on six questions posed to 1,000 households between Nov. 5 and Nov. 7. It was part of a broader survey that is conducted by telephone each week.

Mr. Riepe added that some respondents who believed mutual funds were insured may have been thinking of coverage provided by the Securities Investor Protection Corp.

The SIPC, a quasi-governmental agency, insures investors against loss in the event of the financial failure of a securities dealer or broker, but does not protect investors against the ups and downs of the marketplace.

Mark H. Williamson, mutual fund chief at NationsBank Corp., Charlotte, N.C., expressed puzzlement at the finding that customer confusion is rampant.

"It's highly inconsistent with my own experience in the industry," Mr. Williamson said.

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