At the same time that Wall Street investors have been pulling their money out of some risky corporate debt of MNC Financial Inc., the region's largest bank holding company has been drawing on more than $800 million from the insured accounts of many of its larger depositors to make overnight investments in the same uninsured debt securities.

The transfers, which significantly strengthen MNC's balance sheet, have been made with the prior permission of the customers, who get a slightly increased return from the transactions.

But MNC confirmed that it has not notified the customers that the securities -- called commercial paper -- were recently rated "below investment grade" by one major rating agency, a warning to investors of an unacceptable risk of default on the securities. A bank spokesman said MNC had no obligation to do so and is not in danger of defaulting on the debt. But some securities attorneys, who declined to be quoted by name, said MNC may be obligated to inform its customers.

The Baltimore-based parent of Maryland National Bank, Equitable Bank and American Security Bank has been taking the money from 1,300 bank accounts -- typically businesses with at least $50,000 on deposit -- that participate in MNC's "cash management" program.

Although these customers gave MNC permission to invest their deposits in commercial paper, that permission generally was given at a time when major credit rating agencies considered MNC's commercial paper a much safer investment.

But the credit rating on the commercial paper has steadily declined in recent months. Moody's Investors Service, one of the most widely watched credit rating agencies, now considers MNC's corporate IOUs the equivalent of high-risk junk bonds.

Because of the deteriorating credit rating, big Wall Street investors stopped buying MNC commercial paper months ago. Between March 31 and June 30, Wall Street brokers pulled out more than $600 million from MNC's commercial paper program, which today totals $1.5 billion.

During that same three months, however, the bank increased the amount of federally insured customer deposits being swept into the commercial paper to $1.1 billion from $1 billion. MNC spokesman Daniel G. Finney said that amount has been reduced to $850 million.

"I have checked with a lawyer and I don't think we're obligated to notify {the customers} of rating changes," he said. "But I wouldn't say that the changes are any big secret. They have been widely reported in the major media, which these customers are reading."

Finney said the depositors can ask the bank to stop investing their money in the commercial paper at any time. And he said that MNC is trying to reduce its dependence on commercial paper as a funding source and has lowered the rate of interest it pays on the paper to discourage investors from buying it. Today, MNC is paying interest of about 9 percent on its commercial paper, far below the yield being offered by other bank companies whose paper is considered risky.

Some MNC customers in the cash management program have told The Washington Post that they didn't realize there were higher risk associated with their MNC investment until the recent disclosure of problems at another local financial institution, Washington Bancorporation (WBC), which defaulted on its commercial paper in May.

Finney said that unlike Washington Bancorp., MNC is not in danger of defaulting on its commercial paper. And he noted that while Moody's has downgraded the MNC commercial paper to the equivalent of junk bonds, Standard & Poor's has lowered its rating only to A2, which is still investment grade. On the other hand, WBC's commercial paper never even received a rating by the credit agencies.

The MNC customers also said they did not understand that commercial paper, although issued by the bank company, is not an investment covered by the Federal Deposit Insurance Corp.'s guarantee to insure deposits up to $100,000 per customer account.

"I assumed that my money would be insured overnight because it was insured in the account, even though at night it was going into commercial paper," said one businessman, who asked not to be identified because of his continuing relationship with MNC. "The bank never really spelled it out -- you know, that this was not insured."

Finney said participants in the commercial paper program are sophisticated investors who should understand the difference between federally insured bank accounts and corporate securities. "These are middle market businesses," he said. "These are the kind of people who have more than $50,000 lying around in a checking account that they want to invest overnight for a little higher yield."

Finney said MNC has $450 million in cash on hand and has $560 million in backup lines of credit that could be used to pay off commercial paper holders if they demanded repayment. However, if the commercial paper transfers were suddenly ended, the bank company would be short of cash and strapped for new funding sources to replace the overnight paper investments.