Bank linked to top Clinton aide denied a merger on CRA grounds.

WASHINGTON -- A bank associated with a close aide to President-elect Bill Clinton has become one of the few to have a merger blocked because of a poor Community Reinvestment Act rating.

The denial of the merger application by First Commercial Bank of Memphis did not personally implicate William Bowen, The Clinton adviser who formerly headed the bank's parent, First Commercial Corp. of Little Rock, Ark.

But the ruling, by the Office of the Comptroller of the Currency, may be a mild embarrassment to an incoming administration that has expressed a commitment to lending in poor communities.

Remains a Director

Mr. Bowen, currently chief of staff to Arkansas Gov. Clinton, is expected to gain a senior post in the new administration -- possibly the chairmanship of the Federal Deposit Insurance Corp.

The long-time Clinton confidant retired in 1990 as chairman of First Commercial Corp., a $3 billion-asset holding company that includes Arkansas' largest bank, but he remains a director.

Mr. Bowen was still presiding in 1990 when First Commercial acquired a failing thrift in Memphis that became its Tennessee foothold.

He said Tuesday that he has since been "out of the loop" on day-to-day operations of First Commercial of Memphis, a nationally chartered bank with about $100 million in assets.

In August, First Commercial Corp. announced an agreement to buy the holding company of First City National Bank of Memphis, which has $40 million in assets.

It then planned to merge the two Memphis banks.

The Office of the Comptroller of the Currency rejected the merger last Friday, citing the "needs improvement" raging that First Commercial in Memphis received last May for compliance with the Community Reinvestment Act.

7th CRA Turndown Since '88

It was only the seventh time since 1988 that the OCC had turned down an application on CRA grounds. The Federal Reserve Board also must approve before the acquisition can be completed, and it has not yet acted.

In its 1990 Tennessee acquisition, First Commercial inherited "a virtually nonexistent record of CRA accomplishment," according to Barnett Grace, the current chairman of the Arkansas holding company.

Bank officials say the thrift was in such poor financial shape, bank officers were too preoccupied with survival to worry about community lending and other activities that would have improved CRA performance.

"Developing a proactive CRA program was way down on their list of priorities," said Bill Garner, senior vice president of First Commercial Corp.

|Startup Facility'

First Commercial bankers also say the two years since acquisition was not long enough to introduce a comprehensive CRA program.

"In essence, we feel like what we acquired amounted to a startup facility," Mr. Garner said.

Mr. Grace added that the Memphis unit "has made what we consider to be substantive progress."

He said each of the holding company's other nine affiliates has been rated "outstanding" or "satisfactory" - the two best of four CRA grades.

But an OCC official said First Commercial Bank of Memphis had had enough time to improve.

"We intend to continue pursuing our proactive CRA efforts in Memphis and to work conscientiously with the OCC to improve [the bank's] regulatory CRA rating, thereby allowing us to merge the two banks," Mr. Grace said.

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