fus mutual funds are no way more secure because of the bank merger with Mellon?

Mr. STEIN. Well, in the case of the Widow, I think we are waiting for the comments by the regulatory group, and we are willing to work with them, obviously, in terms of what is best to remove any of the confusions, and wee have worked always with the SEC on various issues. As soon as those comments become available from the regulatory bodies, we will begin to work out how it is handled on our side.

Mr. DINGELL. Now, Mr. Stein, Mellon and Dreyfus have both made a number of voluntary commitments in the submissions which you have made to the OCC. They, by the way, do you a great deal of credit. Is it your intention to abide by all of these commitments?

Mr. STEIN. Yes, we will.

Mr. DINGELL. I assume you join in that feeling, Mr. Cahouet?
Mr. CAHOUET. Absolutely.

Mr. DINGELL. Now, Mr. Stein, will any cross marketing take place between Dreyfus and Mellon Bank? For example, will individuals making solicitation on behalf of Dreyfus mutual funds have access to the bank records of Mellon clients?

Mr. STEIN. No, that is not the way in which it will work. If the banks, for example, have mortgages that they can make available to our constituency-we have our own little mortgage operation now, but we can handle it on a large scale, but we will be bringing the mortgage possibilities to our customers and mail out and let them know that we have them available. Through that process, which is operated on the phone, we think we will be able to deliver a very effective and good mortgage.

Mr. DINGELL. In other words, you would let them know that you have those funds available, but you would not have them made available to you for solicitation nor would the solicitation take place, for example, in the bank lobby or in some fashion like that; is that what you are telling me?

Mr. STEIN. That's right.

Mr. DINGELL. Now, will salespersons be giving individuals slips so that they can solicit mutual fund business?

Mr. STEIN. No, we do not plan on that.

Mr. DINGELL. Now, Mr. Cahouet, back to the consumer protection within the Mellon Bank lobby, the subcommittee received testimony yesterday that confusion in bank lobbies is rampant regarding whether mutual funds are afforded protection of FDIC insurance and also to the extent SIPC protects them from losses. With the program that you will be proposing, how low do you think your rate of confusion will be?

Mr. CAHOUET. Well, Mr. Chairman, we hope it gets down to zero, and we will drive in that direction. Our effort, and I think that you can certainly see it from our opening statements, is to do the best possible job that we can for our customers, and our objective will be to drive it to zero.

Mr. DINGELL. Mr. Stein, in your statement, you said, and I quote now, "Mellon-Dreyfus would be uniquely positioned to meet the public's growing desire for an array of high quality financial products delivered by a source committed to impeccable standards.'

Mr. Cahouet, what I am trying to understand here is exactly what those standards are. After the efforts that you have described today, do you find that 1 in 10 of the customers to whom your employees have sold mutual funds through the bank failed to understand, one, the fees associated with these funds; two, the risk associated with their principal; three, that FDIC insurance wouldn't apply; or, four, that SIPC provides a totally different kind of protection than FDIC insurance? How does that relate to your commitment to impeccable standards in your testimony, and what would you do with regard to the sale of mutual funds through the bank if you found that you had a high confusion level on these points? Mr. CAHOUET. Well, Mr. Chairman, if I understand the question correctly, if 10 percent of the people that buy mutual funds through our organization are confused, we would not be satisfied in any sense. We would try and find out why they are confused, and it might be a system problem and we would try to get at it and solve it.

Mr. DINGELL. Mr. Cahouet, the constant theme we heard yesterday from the prosecutors in the Lincoln case, and from consumer protection groups was that customers of the bank, such as your customers at Mellon Bank, have established a relationship and a trust over the years with the bank. Moreover, disclaimers, prospectuses and the signing of statements saying they understand the mechanics of the transaction are far less significant and, indeed, have often been found to be meaningless when compared to the conversation they have with tellers and marketing people.

Now, what kind of a system would you and Mr. Stein put in place so that you can independently assess and evaluate the dayto-day sales pitches that your employees are giving to the customer?

Mr. CAHOUET. If I understand Lincoln, and you are talking about the Charles Keating situation in the savings and loan situation, if I understand that correctly, of course, that was selling securities of the company, themselves, whether debt securities or equity securities and, of course, we can't sell that at the branch level because we can't distribute our own securities.

But how would we assess how effectively we are being, we would probably do it in forms of mystery shopping. We would certainly do it in going back and asking a representative number of customers whether they were confused or whether they weren't confused. It is in our own best interest to make sure that we do an excellent job for our customers.

Mr. DINGELL. I gather that you are describing a phenomenon of using somebody kind of like a tester or a comparison shopper, or something like that?

Mr. CAHOUET. Mr. Chairman, one way or the other, yes.

Mr. DINGELL. Now I gather from what you are telling me that the kind of survey data that we heard yesterday about retired and elderly receiving a disproportionate number of advances from their banks regarding investment strategies and mutual funds are not going to be something that is going to be tolerated by you as this process goes forward?

Mr. CAHOUET. You are correct, Mr. Chairman.

Mr. DINGELL. Mr. Cahouet, yesterday we saw that many banks that currently engage in the sale of mutual funds tout the benefits of mutual funds in big, bold print. They tend to put the disclaimers regarding FDIC insurance in footprints, or in tiny print. I assume that that will not be a practice in which you will engage?

Mr. CAHOUET. That is correct, and that is one of the reasons that we have decided to be so prominent in putting signs on our doors, both going into the branches and coming out of the branches.

Mr. DINGELL. Now what about where the funds are sold, I assume you will have similar disclaimers where the funds are sold? Mr. MCGUINN. Yes, sir, that is what I mentioned before. This sign that sits here sits both where the tellers are and over on all the desks where the customer service representatives are. In addition, we have all of these oral and written disclosures I talked about before.

Mr. DINGELL. I assume they will be of the size and character that will be readable and understandable?

Mr. MCGUINN. Yes, sir. We believe they are. But, as Mr. Cahouet said before, if for any reason we find out when we are testing that our customers don't understand, we will seek to clarify them. But I think it is important to recognize, too, we even have a form that is described as a customer disclosure form, and it is very separate and all of these disclosures are spelled out where the customer signs.

Mr. DINGELL. Would you submit that for the record to us, please? Mr. MCGUINN. Yes, sir, I would be happy to.

Mr. DINGELL. Now, in addition, one of the curious practices we observe is that the sellers, banks and mutual funds, disclaim FDIC insurance but they also tout SIPC insurance. That seems to be kind of a questionable practice to me. What are your feelings about it?

Mr. MCGUINN. We have worried, sir, about the difference between FDIC insurance and the SIPC membership description, and where we are required to note that we are a member of SIPC, we do that, but we are just now in the process of eliminating the SIPC reference on all of our various documents just in order to avoid that confusion as you have pointed out.

Mr. DINGELL. I assume that you will make plain what, in fact, SIPC does for them in terms of the protections that it affords?

Mr. MCGUINN. Yes, sir. In any case, where we do use it, which we intend to be limited, we will explain the difference between that and FDIC insurance.

Mr. DINGELL. We heard another complaint related to the development of prospectuses where by lay-readers could not understand even the most basic aspects of the fund. I assume that that is a practice that you would eschew and, quite frankly, would probably be critical of: am I correct?

Mr. MCGUINN. Yes, sir. We think by having these trained and licensed PIC's and, again, following up to make sure that the suitability analyses are being used and understood, and the various disclosures are as well, that in fact we will be able to accomplish having our customers informed and knowledgeable.

Mr. DINGELL. I gather you are telling me it should be done in language that would not require the understanding of a Philadelphia lawyer?

Mr. MCGUINN. Yes, sir. We believe that all our customers will be able to understand it.

Mr. DINGELL. Mr. Cahouet, what kinds of things can be done here to ensure that prospectuses are basically user-friendly to the average investor who is not always very sophisticated and doesn't have a great appreciation of language or of financial or banking or investment banking terms.

Mr. CAHOUET. That is always a problem because you have to conform with the SEC requirements.

But maybe, Howard, you or Joe?

Mr. DIMARTINO. Mr. Chairman, the prospectus disclosure requirements, as you know, are the SEC requirements. What we try to do in our material is accompany that with literature which is approved by the NASD in the form of question and answer brochures and in the form of a guide, in effect, to the fund, to the types of investments in the fund, and the privileges that are available in the prospectus that accompanies that.

Mr. DINGELL. Would you submit us samples on that for the record, please?

Mr. DIMARTINO. I would be happy to, Mr. Chairman. [See response on p. 839. The brochures referred to may be found in subcommittee files.]

Mr. DINGELL. Now, Mr. Cahouet, you have made a remarkable presentation to this committee with regard to the intention of Mellon and Dreyfus when the merger is consummated, and you have indicated that these would remain in place for 2 years. Is there a reason why you have put that 2 year limit on it?

Mr. CAHOUET. Not particularly, Mr. Chairman.

Mr. DINGELL. As a reader of fine print, when I see something like "2 years" I wonder does this mean that this is all good for 2 years, at the end of that my warranty expires?

Mr. CAHOUET. No. I think that-no, that is not the case at all. Mr. DINGELL. I shouldn't set my calendar then for 2 years hence and figure that we are going to have another hearing?

Mr. CAHOUET. I understand the question but, for example, in regard to Dreyfus, with the combination with Dreyfus, Mellon will have roughly $220 billion under management. We currently have about $120 billion, $130 billion right now. Of that, about $190 billion of it will be in subsidiaries that are regulated by the SEC, and we certainly would make the commitment to you that as long as the SEC is regulating mutual funds, the mutual fund industry, we would certainly commit that Dreyfus will be under SEC regulation. Mr. DINGELL. Now let me ask this question, you have made all of these commitments, and I have confess myself very much impressed by that, and I mean that honestly, gentlemen, do you regard these commitments as being hurtful in the conduct of your banking business, Mr. Cahouet, or you, Mr. Stein, in connection with the mutual fund business?

Mr. CAHOUET. The answer is no. Currently, at Mellon, we have the bulk of our money that we manage is managed in subsidiaries that are under regulation by the SEC. But more importantly, what

is most important to us is that we conduct our business affairs in a very proper way because that is good business. Pure and simple, it is good business, it is good for the customer but it is also good for our shareholders.

Mr. DINGELL. As a matter of fact, what you are saying really is what I have had occasion to say many times and that is, people think that the securities industry runs on money, it doesn't, it runs on confidence, and if the people have confidence it makes lots of money for everybody.

I gather that your view is that your commitments on these matters are matters with which a responsible bank or a responsible mutual fund, or responsible broker-dealer could comfortably live; is that right?

Mr. CAHOUET. Yes. I mean, that is the way we run the whole bank, the whole organization.

Mr. DINGELL. If the Comptroller were to impose these standards on you, I gather that you would not then object, as a condition for the application?

Mr. CAHOUET. That's correct.

Mr. DINGELL. Now would it be fair to say that nobody else ought to have a complaint if the Comptroller imposed similar standards on them?

Mr. CAHOUET. Well, Mr. Chairman, I don't want to speak on behalf of other people. I can feel quite comfortable speaking on behalf of our organization.

Mr. DINGELL. Well, you are a responsible organization. I would assume that if one responsible organization can accept these standards, every other responsible organization can accept them. Now, is that an unfair inference on my part?

Mr. CAHOUET. Mr. Chairman, I would say that that is fairly consistent deductive reasoning.

Mr. DINGELL. I guess, having said that, that unethical and rascally practitioners might have some difficulty with serving the public interest if they didn't have these kinds of standards to confront, either internally or because of the rules and regulations of the Comptroller of the Currency or perhaps, if this committee succeeds, the SEC. Is that a fair observation?

Mr. CAHOUET. We certainly hear you, Mr. Chairman.

Mr. DINGELL. Very well.

The Chair is going to recognize the gentlewoman from Pennsylvania.

Ms. MARGOLIES-MEZVINSKY. Thank you, Mr. Chairman.

I would like to enter an opening statement into the record, if there is no objection.

Mr. DINGELL. Without objection, so ordered.

[The prepared statement of Ms. Margolies-Mezvinsky follows:]

OPENING STATEMENT OF HON. MARJORIE MARGOLIES-MEZVINSKY

Thank you, Mr. Chairman for holding these important hearings. I am eager to hear the testimony today from Comptroller of the Currency Ludwig as well as from the CEO's of Mellon Bank Corporation and the Dreyfus Corporation. Yesterday's important and expert testimony from the three distinguished panels brought to light key concerns relating to this proposed merger. I look forward to further exploring these issues with our witnesses today.

Specifically, I want to learn in greater detail how the architects of this proposed merger intend to protect the consumer and safeguard consumer interests.