WASHINGTON - Hoping to head off expected Community Reinvestment Act challenges to their proposed merger, Chemical Banking Corp. and Chase Manhattan Corp. plan to retain all but 10 of their 95 branches in low- income areas.

The banks said last week that they will continue operating 85 full- service branches in these communities. Three branches will be replaced with automated facilities, and seven will be closed because they are within two blocks of another facility.

"We hope this will put to rest the concern that the merger in any way will result in a reduction of service to low- and moderate-income communities," said Mark Willis, president of Chase Community Development Bank.

Mr. Willis said the banks will spend $10 million to renovate their existing low-income-area branches, and they will install 46 multi-lingual ATM machines in downstate New York, a 40% increase. Finally, the banks will extend hours at some branches and hire more bi-lingual employees.

The banks will proceed with Chemical's plan to open a new branch at a supermarket in Harlem, and will continue to provide $9 million in grants to community groups.

After the merger, the banks will have 27% of their New York City branches and 19% of their upstate branches in low- and moderate-income areas.

"We hope the community will be pleased that we are seeking to increase the levels of services we provide in low- and moderate-income neighborhoods through the upgrade of facilities and the addition of the ATMs," Mr. Willis said.

Community leaders supported the branch proposal. Fran Justa, executive director of Neighborhood Housing Services, said the plan makes perfect sense. But she added that she hopes the institutions will consider expanding further into underserved areas.

Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project, said the banks are closing far fewer branches than most groups expected.

"It is an interesting preemptive move," Ms. Ludwig said. "They realize people are extremely concerned."

The proposed $10 billion merger of Chemical and Chase would create the country's largest bank, with $297 billion in assets and 1,082 branches.

The deal must be approved by federal and state banking regulators, who are required to consider the merger's effect on the "convenience and needs" of the community. Mr. Willis said the branch plan should help clear that hurdle.

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