The trust departments of banks, traditionally the venue of the rich if not the famous, may be about to become accessible to the merely prosperous -- a prospect that has the mutual fund industry crying foul.

Under regulations proposed by federal bank regulators, national banks would be able to start advertising trust accounts and charging fees in whatever way state laws permit. By setting up trusts in a way that will appeal to small investors and promoting them to the public, banks would be able to market them to people looking for an investment vehicle, according to opponents.

The effect, according to these critics, would be to subordinate the traditional trust aspects of these accounts and put banks into the mutual fund business.

"The proposed rule represents a frontal assault" on congressional restrictions on banks' activities in the area of stocks, bonds and other securities, according to a letter from the Investment Company Institute, a mutual fund trade group, commenting on the regulations.

The rules offer the potential for a new competitor in the money management field, one that could offer convenience, efficiency and, based on past performance, outstanding investment value.

At the same time, however, the rules raise the possibility that confused investors, as happened with the failed Lincoln Savings & Loan Association, will think they are putting their money into a federally insured deposit when they are not.

"There is a real problem of potential public confusion, when you are offering a product inside the bank which looks kind of like a bank product but really is nothing more than a mutual fund," said one congressional staff member. "That's a serious problem."

The rules have been proposed by the Office of the Comptroller of the Currency, an agency of the Treasury Department that regulates national banks. The time allowed for public comments ended earlier this month, and the OCC now is considering whether to make the regulations final.

The proposal has stirred widespread concern on Capitol Hill. Members ranging from House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) to House Energy and Commerce Committee Chairman John D. Dingell (D-Mich.) to Northern Virginia Rep. Stan Parris (R-Va.) have written to the regulators expressing concern.

Rep. Edward J. Markey (D-Mass.) and several other members criticized the "granting of Lincoln-type securities powers, with no corresponding safeguards."

The rules come at a time when Congress is wrestling with the broad question of banking policy, trying to decide exactly what the role of banks should be in the U.S. economy.

Since the 1930s, the Glass-Steagall Act and other legislation have sharply restricted bank activities outside their traditional businesses of taking deposits and making loans. But banks argue that these restrictions are obsolete and hamper their efforts to compete effectively with giant foreign banking concerns.

Many bankers would like to get into not only the mutual fund business, but also insurance and securities generally. Their struggle, and efforts by industries in those fields to keep them out, are visible in the advertising campaigns appearing in this and other newspapers and the less conspicuous but just as vigorous lobbying campaigns on the Hill and in the regulatory agencies.

Thus, the OCC's proposal does not sit well with members of Congress, who view it as an end run.

With the questions about the solvency of bank deposit insurance funds and the experience with savings and loans, "Why would you do anything that would add risk?" said one congressional staff member familiar with the issue. "It just makes no sense."

"These issues should be addressed along with deposit insurance reform but not until then," this staffer said.

Another staffer noted that while trust accounts are not insured, "if these things run amok, are we exposing the deposit insurance fund to a huge liability?"

A spokeswoman for the OCC said, however, that the rules changes are not that dramatic, and do no more than put national banks "on a par with state banks," many of which already have these powers.

At issue in the rules are so-called "common trusts," which are investment pools operated by banks so that they can manage relatively small trust accounts efficiently. If a trust account is large enough, it can be managed as a separate entity, but smaller sums would be eaten up by fees if handled separately.

Thus, regulators have for many years allowed banks to pool smaller trust accounts and manage them together.

But trust accounts are more than simple investment vehicles. They involve a "fiduciary" relationship that requires the bank to manage the money prudently and with only the interests of the beneficiary in mind, much as the trustees of a pension fund must watch over investments on behalf of current and future pensioners.

The new rules would leave most regulation of these funds to the states, which opponents see as tantamount to no regulation at all.

"The proposed rule is intended to convert bank common trust funds from administrative devices into mutual fund vehicles used to sell collective money management services to the public for a profit," the Investment Company Institute comment letter charges.

Some small banks oppose the rules, but others and most big banks want the change. And they dispute the ICI's charges.

"I only wish {the proposed rules} would let us into the mutual fund business because we want to be in the mutual fund business, but this isn't the vehicle for it," said James D. McLaughlin of the American Bankers Association. Marketing common trust services "to the masses" would bring banks afoul of the Securities and Exchange Commission, he said.

McLaughlin called the ICI's objections "blatantly anti-competitive," and pointed to figures that show the average bank trust department has outperformed the average mutual fund for many years.

"If I were the ICI, I'd be scared, too," he said. The rules would continue to require some fiduciary relationship, but Matthew P. Fink, ICI's general counsel, said it would be easy to form "thin" trusts in which many small investors could put money with only the most tenuous fiduciary relationship.

It is not clear when the regulations might go into effect. The OCC could modify or even drop them.

But even as a proposal they offer one more reason bank customers should ask questions and read all the fine print to make sure they know whether their money is covered by federal insurance or not.