WASHINGTON The Senate Banking Committee approved legislation Tuesday that would provided funding for community development lenders and give banks a small victory in their quest for regulatory relief.

The bill, which now goes to the Senate floor, also includes a measure sponsored by Sen. Alfonse M. D'Amato, R-N.Y., designed to spur creation of a secondary market in small-business loans. Another provision attempts to limit abuses in the home equity loan market.

The bill cleared the committee on an 18-1 vote.

For bankers, the bill offers an opportunity to obtain meaningful relief from regulations they have complained are needlessly burdensome.

Applause from ABA

The legislation "shows a growing understanding of the impact massive government requirements have had on credit availability," said William H. Brandon, president of the American Bankers Association.

"Congress has gotten the message and is starting to change things," added Mr. Brandon, who is also president of First National Bank of Phillips Country, Helena, Ark.

However, bank lobbyists also expressed disappointment that the bill did not go further in attacking regulations.

"Our view is that it doesn't amount to very much," said Stephen J. Verdier, a lobbyist for the Independent Bankers Association of America.

Mr. Verdier said bank lobbyists would ask lawmakers to broaden the regulatory relief section, both on the Senate floor and in the House.

The bill requires bank and thrift regulators to eliminate outmoded, inconsistent, or duplicative rule within two years and mandates a single, unified examination procedure.

It calls for establishment of a system for appealing examiner decisions.

The bill also permits electronic filing of call reports and currency transaction reports, allows transactions between affiliated banks, and requires studies of the impact of risk-based capital and the possibility of interest for reserves held at the Fed.

Amendments Withheld

Senate Banking Committee Chairman Donald W. Riegle, D-Mich., spent weeks piecing together a bill that would command a majority, and his efforts paid off with the quick, one-sided vote in favor of the measure.

He was able to persuade a number of lawmaker to withhold amendments that would have been controversial, including Sen. Richard Bryan, D-Nev., who wants to lift the 7% annual growth cap on grandfathered nonbank banks. Sen. Bryan said he will try later this year to lift the cap.

The bill's centerpiece is the President's proposal to provide $382 million over four years to institutions specializing in community development loans.

Stakes in Development Banks

President Clinton Advocated creation of a new network of community development banks during the campaign, and the proposal though scaled back considerably remains a priority for the administration.

While the Clinton proposal would have exclude virtually all commercial banks from obtaining funding, the Senate bill permits banks and thrifts to own minority stakes in eligible community development lenders. The maxium assistance available for any one development lender is $5 million over five years.

Opposed by Several Senators

Although the bill passed the panel easily, several senators denounced it.

Sen. Richard Shelby, D-Ala., a frequent critic of the administration, said the bill offered too little regulatory relief and cost too much. He said the $382 million provided in the measure "is just a pittance compared to the capital that could be unleashed" by banks and thrifts if they were given meaningful relief, particularly from the provisions of the Community Reinvestment Act.

But most members of the banking committee backed the bill and even Sen. Shelby voted for it.

Treasury Secretary Lloyd Bentsen hailed the committee action, saying the lopsided vote "demostrates both the breadth of support for the President's community development banking proposal and the bipartisan spirit of cooperation within the committee."

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