WASHINGTON -- President Clinton's deficit reduction bill, which faces key votes on Capitol Hill today and tomorrow, is a mixed bag for the banking industry. But the package promises genuine relief in one area crucial to lenders -- the nation's flagging real estate markets.

The bill reinstates deductions for passive losses by real estate professionals and permits pension funds to invest more freely in real estate investment trusts, or REITS. It also eliminates a tax barrier to restructing loans secured by real estate.

"None of these things are a panacea," said Richard J. Boyle, vice chairman of Chase Manhattan Bank, New York. "But it's a smart piece of legislation. All of these things, taken as a whole, bring stability to the market."

Mr. Boyle said the loan restructuring provision may prove particularly important to banks.

A Tax Liability

Under current practice, a restructured loan creates a tax liability for the borrower. If a bank agrees to reduce the loan principal for a cash-strapped borrower and accepts an equity stake in the company in its place, the amount of debt reduction is treated as income for tax purposes.

Real estate lobbies have argued that borrowers often find it cheaper simply to deed the property back to the lender, or to declare bankruptcy and avoid the tax altogether. In either case, the lender is worse off.

Under the tax bill, which is a major component of the deficit reduction package, the reduction is debt would not be treated as income. Instead, the borrower's tax basis in the property would be reduced.

|Everybody Benefits'

As a result, the government would still get most of the tax revenue in the long run, through lower depreciation deductions rather than a one-time tax on income.

Lobbyists who have been working the bill argue that everybody benefits. Lenders maintain a performing loan, going businesses are saved and the government still gets paid.

"The provisions are critical to addressing the asset-value and liquidity problems that continue to plague real estate markets and, consequently, the economy overall," said Steven A. Wechsler, president of the National Realty Committee, which represents a number of large banks and real estate interests.

In addition, the passive loss provision, which makes it possible for real estate professionals to deduct losses on rental properties, also could prove important, according to industry lobbyists.

"The passive loss rules are an important psychological thing," said Jim Butera, a financial institutions lobbyist. "But psychology is an important part of all markets."

Ambivalent at Best

Still, Mr. Butera and others said that the gains or real estate were offset by losses in other areas. Many bankers and thrift executives are at best ambivalent about the package.

"An awful lot of bankers would say they are concerned that there are not more spending cuts," said Edward L. Yingling, executive director of government relations for the American Bankers Association.

On the plus side, however, bankers beat back an effort to assess new fees on states-chartered banks and won approval of an important provision that permits banks and thrifts to amortize the value of acquired core deposits.

And while lenders did better than expected on student lending, the bill would still transfer a majority share of the market to the federal government.

Even Worse News

For investors that acquired failed thrifts prior to Jan. 1, 1989, the news was even worse. The bill includes a provision repealing a key tax break that cash-strapped regulators used to finance the sale of failed thrifts.

"It is unfair in the extreme that those induced to acquire thrifts by the promise of tax breaks" should lose those advantages retroactively, said Leonard Bickwit, a lawyer with Miller & Chevalier, here.

Still, Chase's Mr. Boyle said the bill as a whole is a step forward.

"On balance, we are at a point where everybody can find something in the bill they don't like," Mr. Boyle said. "But as a whole, it is good for the country."

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