Vol. 8 No. 3 - Article II - Published: February 1996 - Foot Notes
Banks and Mutual Funds
by Jay W. Golter
Authors
Jay W. Golter is a financial analyst in the FDIC's Division of Research and Statistics. The author
is
grateful for the contributions made by John Harvey, Detta Voesar and Geri Bonebrake, and for
the
helpful comments of Ellen Landry, Caryl Austrian and George French.
Footnote 1
See Investment Company Institute (1994 (b)).
Footnote 2
Closed-end investment companies issue a fixed number of shares that trade on a secondary
market.
Changes in the market value of the portfolio, as well as shifts in the demand for the shares, are
reflected in the price at which shares trade. In this paper, the term mutual fund will refer only to
open-ended companies, unless otherwise specified.
Footnote 3
See, for example, Senator Robert F. Wagner's remarks in the Congressional Record of
March 14, 1940, introducing legislation that would become the Investment Company Act of
1940.
During the previous decade, investors had lost $3 billion of the $7 billion that they had placed in
investment trusts and investment companies
.
Footnote 4
All fund family data in this paragraph are from Morningstar Mutual Fund Sourcebook 1994
.
Footnote 5
The sixth-largest fund family, Dreyfus, was purchased by the Mellon Bank Corporation in 1994.
Footnote 6
Lappen (1993). The 80 percent estimate is on a base of $66 billion in assets under management
by
Federated. Federated manages funds distributed under other names that are not included as assets
of the Federated Funds family.
Footnote 7
Securities and Exchange Commission (1992), p. 255.
Footnote 8
Investment Company Institute (1994 (c)).
Footnote 9
Investment Company Institute (1994 (b)).
Footnote 10
FDIC (1993).
Footnote 11
Investment Company Institute
Footnote 12
FDIC (1995).
Footnote 13
CDA/Wiesberger (1994).
Footnote 14
BIF is the Bank Insurance Fund.
Footnote 15
"Underwriting" a mutual fund share is more of a technicality than is the case with ordinary debt
and
equity issues. Each day, the market value of the shares of a mutual fund equals the market value
of
the assets in the fund. New shares are issued as new investors provide funds. The underwriter
holds
the new shares for a mere instant as the transaction is completed. Therefore, the underwriter does
not hold an inventory of shares for placement and is not subject to market risk.
Footnote 16
See Fein, Schonfeld and Freeman for a detailed description of these regulatory
developments.
Footnote 17
Section 3(a)(34)(B).
Footnote 18
The Office of the Comptroller of the Currency is the primary federal regulator for national banks;
the
Federal Reserve Board is the primary federal regulator for state-chartered member banks; the
FDIC
is the primary federal regulator for state-chartered nonmember banks.
Footnote 19
Generally, fund sponsorship is associated with the investment adviser. If the adviser is a bank or
an
affiliate within a bank holding company, the fund is considered proprietary to that bank.
Footnote 20
Fein, Schonfeld, and Freeman (1994).
Footnote 21
Letter dated June 27, 1986, from the Federal Reserve Board's General Counsel to Sovran
Investment
Corporation.
Footnote 22
FDIC Staff Interpretive Letter No. 89-04 (January 30, 1989).
Footnote 23
Bank Securities Journal (September/October 1994), pp. 40-42.
Footnote 24
Lipper Analytical Corporation.
Footnote 25
Fein, Schonfeld, and Freeman (1994).
Footnote 26
Morningstar Mutual Fund Sourcebook 1994 .
Footnote 27
Bank Securities Journal (September/October 1994).
Footnote 28
Lipper Analytical Services, Inc. This source also reports that 40 of the 103 banks used affiliates
for
both custody and transfer agency services. From these totals it can be discerned that 78 of the
103
banks used affiliates for one or both services.
Footnote 29
Lipper Analytical Services, Inc.
Footnote 30
Investment Company Institute (1994 (a)).
Footnote 31
See Cerulli Associates (1995).
Footnote 32
See Lappen (1993).
Footnote 33
See Holliday (1995).
Footnote 34
See U.S. General Accounting Office (1995).
Footnote 35
Cerulli Associates, Inc. (1995).
Footnote 36
Bank Securities Association.
Footnote 37
Lipper Analytical Services, Inc.
Footnote 38
This total is net of any events in which two banking firms with proprietary mutual funds merged.
Footnote 39
Investment Company Institute (1994 (a)).
Footnote 40
Lipper Analytical Services, Inc.
