Summary: At the end of 1993, about 114 banking institutions had established their own families of mutual funds with assets of more than $219 billion. In addition, banks and thrifts have become major sales outlets for other companies' funds. This rapid growth in sales of mutual funds by banks has raised concerns that customers may not understand the risks of mutual fund investments compared to insured deposits. In February 1994, the four banking regulators issued guidelines that banks and thrifts are to follow in selling nondeposit investment products, such as mutual funds. However, GAO found that many institutions are not following the guidelines. Only about one-third of the institutions GAO visited made all the risk disclosures called for by the guidelines, and about one-third did not clearly distinguish their mutual fund sales area from the deposit-taking area of the bank as required by the guidelines. The current regulatory framework allows banks to choose how to structure their mutual fund sales and advisory activities and, depending on that structure, how they are regulated. As a result, banks can opt to sell mutual funds directly to their customers and be subject to oversight by the banking regulators, but not by securities regulators. This creates the potential for different regulatory treatment of the same activity and a potential for conflict and inconsistency among different regulators.
