Head of Securities Industry Association: Banks Should Seek Regulation like Ours

By Tucker, Bill | American Banker, June 14, 1993 | Go to article overview

Head of Securities Industry Association: Banks Should Seek Regulation like Ours


Tucker, Bill, American Banker


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. …

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