WASHINGTON -- The Federal Reserve Board on Thursday reversed its earlier decision to deny a Shawmut National Corp. acquisition bid.

The Fed's decision clears the way fro Shawmut to buy New Dartmouth Bank, Manchester, N.H.

In addition, it will allow the institution to move forward with its previously announced expansion plans, including the purchase of several New England banks.

$960,00 Involved

The board's action follows by four months a high-profile press conference in which Shawmit chairman Joel Alvord appeared with Attorney General Janet Reno to announce a settlement of a Justice Department investigation into lending discrimination by the bank.

In setting the case, Shawmut committed $960,000 to compensate black and Hispanic applicants turnede down for mortgages by the bank. It also outlined a number of steps Shawmut had taken to ensure against discrimination.

In announcing its decision Thursday, the Fed took note of the Justice Department settlement, and said it had also considered new information supplied by Shawmut after its application to purchase New Dartmouthc was turned down last November.

Straw in Wind

The denial generated wide-spread attention, with many interpreting it as a sign that the Fed was taking a tougher stance on community and minority lending issues.

Since the Fed action, Shawmut has entered into a $1 million settlement with the attorney general and reorganized its data collection procedures.

The vote reversal is highly unusual for the Fed, which rarely agrees to revisit its votes once they have been announced. But after carefully revieweing Shawmut's new programs and most recent lending data, the board concluded that the bank has cleaned up its act.

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