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action will, one, be beneficial for consumers; two, will provide to purchasers of Dreyfus mutual funds substantial protections that extend beyond industry practice; and, three, will result in a stronger Mellon, better able to play its rightful role for customers and shareholders and within the economy.

Let me discuss each of those conclusions in greater detail. Consumer benefits. The Mellon-Dreyfus transaction is beneficial to the consumers because it responds to what many consumers have said they want, a convenient, single source of financial services, preferably a bank which offers mutual funds.

Indeed, the 23 percent annual growth rate in mutual fund assets over the last 12 years as compared to a 6.3 percent growth rate in bank deposits clearly attests to the fact that mutual funds have become an investment vehicle of preference. Mellon's three-State branch network, when coupled with Dreyfus' extensive teleservicing capabilities, has a potential to greatly enhance convenience of access for both Mellon and Dreyfus customers and potentially for millions of other customers.

This transaction also means that professional financial advice will be easier to obtain for those customers at a time when they must make ever more complex personal financial decisions which, in the past, have been made frequently by their employers, notably with respect to retirement planning.

The extraordinary growth in 401K defined contribution plans to the current level of approximately $480 billion in total assets is compelling evidence of this trend. Finally, the operating synergies between Mellon and Dreyfus, coupled with Mellon's well known technological capacity and expertise, virtually assure Mellon and Dreyfus customers of state-of-the-art products and services at competitive prices.

Consumer protection. Because we share your concern for depositor and investor protection, Mellon's policy statement on mutual funds previously provided to this subcommittee and other applicable policies and procedures go well beyond current bank practice and conform substantially to the requirements of H.R. 3447.

Our responses to earlier questions posed by this subcommittee, as well as our accompanying written statement, detail the many consumer protection provisions we have in place. In general, they are designed to ensure, first, that all of our employees who provide financial advice or sell mutual funds are well qualified and properly trained to discharge their responsibilities.

This includes a requirement that all employees of Mellon who recommend or sell mutual funds in Mellon Bank branches are registered with the National Association of Security Dealers and are, therefore, subject to NASD regulation. These duties range from determining the suitability of an investment for a particular customer to providing timely, accurate disclosures, and, second, that the investment risk, lack of deposit insurance and the distinction between bank deposits and mutual fund shares are disclosed to purchasers of mutual fund shares through the bank.

I would also emphasize that the Dreyfus name will be retained and that the Mellon name will not be used on any mutual funds. Bear in mind that separate from the statutory and regulatory requirements with which we must comply, our proactive stance on consumer protection makes especially good business sense for us. We are, after all, a financial services company whose reputation and return to shareholders rests on our ability to attract and maintain long-term customer relationships.

When we announced this transaction in December, we said we need to make it a model that others could emulate in the future. The thorough employee training and consumer protections that we have created are the very foundation of that model.

A stronger Mellon Bank and Mellon Bank Corporation. Mellon Bank Corporation is today a diversified financial services company with a bank at its core. Our business strategy has been targeting this type of organization for the past 7 years because we believe it positions us well to compete in an industry that is changing profoundly.

The combination of Mellon and Dreyfus is not only a logical next step in pursuing that business strategy, but greatly strengthens both the corporation and Mellon Bank in several important ways. The transaction adds greater stability to Mellon's revenue base by bringing fee-based revenue which is known to be less volatile than interest revenue to 52 percent of our total revenue stream and it strengthens our balance sheet by improving significantly our capital ratios.

In addition, this fee-based income further strengthens the quality of our earnings. The transaction also builds on certain of Mellon's key strengths and past investments for the benefit of our customers. For example, it will utilize more effectively both our retail delivery system of more than 400 branch offices and our technological capacity and expertise, both long recognized strengths for Mellon.

In addition, the combined Mellon-Dreyfus will be the second largest investment advisory firm in the Nation, combining two firms with extensive experience and outstanding reputations in money management and customer service. This, in turn, will enable us to attract and keep the best investment and management expertise to such firms.

At the same time, Mellon has put into place a number of procedures and policies that are designed to ensure the safety and soundness of the bank. As detailed in our written submissions, they include commitments to apply sections 23(a) and 23(b) of the Federal Reserve Act to transactions between Mellon and Dreyfus and to refrain from a series of transactions that could create a conflict of interest.

Overall, the combination of Mellon and Dreyfus creates a new financial institution, stronger than either could be alone, one that, as to financial marketing and management capabilities, is uniquely able to meet changing consumer demands into the 21st Century.

In conclusion, it is important to remember as we consider this transaction that banks play a key role in the economic infrastructure of this Nation. Bank lending to consumers in small businesses and bank support of their local communities are unique and critical elements of a healthy U.S. economy.

But Mellon and other banks can continue to provide that essential economic fuel only if we are permitted to sell to consumers the services and products they need at times and places convenient to them. To the extent that Mellon and Dreyfus are approaching this transaction with comprehensive protections in place for depositors and investors, and we believe we are doing so, this union of two great companies is a natural step in the reshaping of a financial services industry which must continue to evolve if it is to remain responsive to consumers' changing demands.

There are always potential risks in change. We believe we have accurately identified and analyzed those risks in this transaction and have in place the management expertise, operating capabilities and procedures to address them successfully. In the end, the much greater risk for our customers, our industry and our companies is to stand still when the environment in which we must compete is changing

Thank you.
[Testimony resumes on p. 378.)
[The prepared statement of Mr. Cahouet follows:)



U.S. House of Representatives

Committee on Energy and Commerce
Subcommittee on oversight and Investigations

Proposed Merger of The Dreyfus corporation

with Mellon Bank, N.A.


Three major industries in the United States are undergoing profound change at the present tine: health care,

telecommunications and financial services.

All three industries

have been shaped over the years both by economic and market

forces, including consumer demands, and by legislative and regulatory initiatives. The Committee on Energy and Commerce is in the unique position today to shape the public policy which will help manage the changes occurring in all three industries.

Mellon Bank Corporation (MBC) believes that fundamental change is best dealt with not by ignoring or resisting the change, but rather by managing the change through identification of the

risks accompanying such change and the development of and implementation of techniques to manage those risks. We welcome the opportunity to work with the Committee to undertake such process in connection with the risks that may be posed by one such fundamental aspect of change in the financial services industry; namely, the increasing affiliations between the banking and mutual fund segments of the financial services market. MBC's proposed transaction with The Dreyfus Corporation ("Dreyfus") is a part of that change.

What MBC and Dreyfus have attempted to do is develop a model for dealing with this change. This model has five objectives, each of which must be accomplished if the model is to be successful: (1) worthwhile products for the consumer; (2) safety and soundness of both the bank and the mutual funds; (3) disclosure to enable the customer to make an informed decision; (4) minimization of conflicts of interest; and (5) benefits for both the constituent parties to the merger. In particular, MBC has developed an extensive Policy Statement on Mutual Funds (the *Policy Statement"), which is designed to build on its existing policies and procedures and those of Dreyfus, in order to accomplish these five objectives. In developing the Policy Statement, MBC has also attempted to address the issues and concerns in H.R. 3447, the Securities Regulatory Equality Act, H.R. 3306, the Depository Institution Retail Investment Sales and Disclosure Act, and the banking agencies' guidelines on sales of nondeposit investment products.

After an overview of relevant changes in the financial services

industry, this testimony is divided into eight sections which correspond to the topics listed in Chairman Dingell's letter of February 17, 1994: (a) the structure of the transaction;

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