VETOES

May 27, 1988

The Honorable Thomas V. Mike Miller, Jr.

President of the Senate

State House

Annapolis, Maryland 21401                                 

Pear Mr. President:

In accordance with Article II, Section 17 of the Maryland
Constitution, I have today vetoed Senate Bill 709.

Senate Bill 709 inadvertently expands the authority of credit
unions and savings and loan institutions to invest in mutual
funds and money market funds without obtaining the prior approval
of the State Bank Commission or the Director of the Division of
Savings and Loans. In addition, the bill requires that those
investments be limited to direct obligations of the U.S.
government.

Investments in mutual funds or money market funds are really
investment in the management of the fund, not in a specific
security. If the fund is not well managed, the investor may
suffer losses. Because it takes a certain level of expertise to
determine whether a particular fund is a sound investment, it is
a decision that should rest with those entities that have the
most knowledge. For the most part, the credit unions and the
savings and loan institutions are not sophisticated enough to
make those types of decisions.

In addition, not every mutual fund or money market fund whose
portfolio is limited to U.S. government securities is acceptable
to the State Bank Commissioner and the Director of the Division
of Savings and Loans for a particular institution. That is
because some of those funds invest in securities of varying
natures which carry a greater degree of risk.

Unless the regulators of credit unions and savings and loan
institutions retain the right to prevent and limit those
institutions from investing in certain securities, the soundness
of some of Maryland's depository institutions could be adversely
affected.

The Bank Commissioner, the Director of Savings and Loan, and
other interested parties have informed me that they will attempt
to resolve this matter in a satisfactory fashion.

For those reasons, I have decided to veto Senate Bill 709.

Sincerely,

William Donald Schaefer

Governor

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