Magazine article American Banker

Fed Examiners to Check on Banks' Disclosure Practices

Magazine article American Banker

Fed Examiners to Check on Banks' Disclosure Practices

Article excerpt

The Federal Reserve has directed its corps of examiners to step up scrutiny of bank mutual fund activities.

In a letter. to supervision chiefs at each of the 12 Federal Reserve Banks, the Fed said examiners should review banks' disclosure practices to make sure customers understand that mutual funds can fluctuate in value.

In addition, examiners should insist that mutual funds be sold only in "a physical location separate from the area where the business involving insured bank deposits is conducted," the Fed said.

"Signaling" by the Fed

The official guidelines are somewhat stricter and considerably more detailed than any issued so far by a bank regulatory agency.

They were spelled out in a June letter signed by Richard Spillenkothen, director of the Fed's division of banking supervision and regulation.

"The Fed is signaling that it is going to be active in this area, as the Office of the Comptroller of the Currency has been," said Donald W. Smith, a law partner with Kirkpatrick & Lockhart, Washington.

The Fed's guidelines apply to examiners of state-chartered banks that belong to the Federal Reserve System.

Joining Forces?

Regulatory scrutiny of the bank mutual fund business has intensified in recent months as the number of banks offering the investment products has ballooned.

The Comptroller's office has been in the forefront, but its guidance for the most part has been issued informally -- in speeches by senior executives or in letters to individual institutions. …

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