What is the Value-Added for Large U.S. Banks in Offering Mutual Funds?

This paper argues that an implicit deposit-insurance credit enhancement is extended to any nondeposit savings vehicle offered by a very large bank. This unpriced credit enhancement helps to explain the preference revealed by very large U.S. banks for gearing up to offer mutual funds instead of developing index-linked deposit products. It also explains why large banks have been more eager than small banks to offer mutual funds and why bank mutual funds could be priced to grow at a time when bank deposits were being priced to shrink.