The Big Money Funds Strike Back

Last week's announcement by Dreyfus Corp. that it wanted to start its own national bank escalated the war between banks and money-market funds to win consumers' savings. Banks are already well on their way to becoming more like the money funds. Under a bill signed by President Reagan last month, the banks will soon be permitted to offer a new product that will pay as much interest as the banks

care to shell out on deposits that perhaps may be as small as $2,500. Said Citicorp Chairman Walter Wriston: "I think it's terrific." Dreyfus, which manages the third largest money fund with assets of $12 billion, reacted swiftly. Just days earlier, it had announced plans to buy the tiny Lincoln State Bank of East Orange, N.J. By making application to the U.S. Comptroller of the Currency for permission to start its own bank as well, Dreyfus sent a signal that it was determined to get into banking one way or another. Investors in the Dreyfus Liquid Assets fund can already write checks against their accounts. Affiliation with a bank would help the company reach customers who feel

more comfortable dealing with a bricks-and-mortar institution than with a firm like Dreyfus that handles deposits and withdrawals by mail. More important, bank ownership would allow Dreyfus to provide federal insurance for its depositors up to $100,000, a competitive advantage that money funds currently lack. If Dreyfus is successful

in winning Government approval to go into the banking business, other money managers will not be far behind. Bruce Bent, president of the Reserve Fund, the 20th-ranked money fund with $3.5 billion in assets, admits his firm has been considering buying or starting a bank for eight months. Says

he: "I'd rather call myself a bank than a money-market fund because more people know what a bank is." So far, it is unclear whether the money funds will get Government permission to go into the banking business. The banks themselves could decide to lobby ferociously against such a move. Unlike most wars, however, this one already has a clear winner: the savers. It is they who will wind up with more options on where to put their money.

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