WASHINGTON -- A politically potent group of House Banking Committee members is sponsoring a community development lending bill that would provide more financial incentives for banks than President Clinton's program.

The measure, sponsore by Rep. Floyd Flake, D-N.Y., and Rep. Jim Leach, R-Iowa, appears to have a better-than-even chance of prevailing over the President's approach.

Six Democrats, including four minority legislators, have signed on as co-sponsors. If all 20 Republicans back the bill, it would have a bare majority when the full committee votes, even if no other Democrat signs on.

Other Influential Backers

In addition to Rep. Flake and Rep. Leach, the bill's sponsors include a number of influential Banking Committee members, among them Rep. Barney Frank, D-Mass., and Rep. Thomas Ridge, R-Pa.

"That's a very potent combination," Edward L. Yingling, chief lobbyist for the American Bankers Association, said of the coalition. "You can see the influence of the black caucus and the impact of the Republicans. It's something we would take very seriously."

The Flake-Leach package would make commercial banks eligible for funding if they want to start or expand a community development unit. In addition, it would divert half the money in the bill to the Bank Enterprise Act, which awards banks a rebate on deposit insurance premiums if they lend in low-income areas.

|Safe-Harbor' Provision

Another section of the bill would give commercial banks with a good CRA record a "safe harbor" that would shield them from CRA protests. In addition, investment in a community development financial institution would count as a factor in a bank's CRA evaluation.

The bill also gives community groups an opportunity to challenge a bank's lending record before it is rated under the Community Reinvestment Act.

It directs regulators to adopt a "performance-based" approach to CRA, a step President Clinton took when he announced his community development bank program.

Mixed Emotions?

Bankers are likely to have mixed feelings about the Flake initiative, which was introduced as a bill Thursday evening. Although industry representatives have argued that banks ought to be able to share in the financial incentives for community development, they are nervous about performance-based CRA standards.

In addition, many have concerns about diverting deposit insurance premiums for social programs, even when -- as in this case -- the insurance fund is reimbursed.

But if bankers have mixed emotions about the bill, antipoverty groups were adamant in their opposition.

"I'm somewhat appalled that there is a safe harbor in the bill," said Deepak Bhargava, a banking lobbyist for the Association of Community Organizations for Reform Now, or Acorn.

A Range of Criticism

"The only reason we need legislation like this is because mainstream banks have withdrawn from low-income communities," he said. "It would be perverse to reward them now."

Likewise, Chris Lewis, a banking lobbyist for the Consumer Federation of America, said the safe-harbor provision "would guarantee disinvestment" in low income communities.

"You have to wonder why Floyd Hake is abandoning the President," he added.

Way to Show Concern

The Flake-Leach bill also signals that the administration's Community Development Financial Institutions bill is likely to be opened up to other issues, despite the interest of the White House in keeping it "clean." That could work in the banking industry's favor.

"An awful lot of Democrats would like to vote for a 'regulatory burden' package as a vote to show concern about small business issues," said the ABA'S Mr. Yingling.

That interest has been compounded by the reaction to the President's deficit reduction package. "The tax bill is seen by a lot of groups as anti-small business and the Democrats are being forced to vote for it," Mr. Yingling noted.

Other co-sponsors on the Flake-Leach bill are Rep. John J. LaFalce, D-N.Y.; Rep. Albert R. Wynn, D-Md.; Rep. Marge Roukema, R-N.J.; Rep. Richard Baker, R-La.; and Rep. Lucille Royball-Allard, D-Calif.

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