Federal Reserve Board Governor Lawrence B. Lindsey on Thursday backed a broad set of reforms to spur investment in the nation's inner cities.

"There is no shortage of deregulatory actions which would enormously benefit community-based economic programs," Mr. Lindsey said in a speech.

Rather than making a political football out of the Community Reinvestment Act, Mr. Lindsey said lawmakers should focus on "an overall urban development strategy based on deregulation."

Addressing the National Bankers Association in New York, Mr. Lindsey said regulations affecting banking, financial markets, and the work force drive up the cost of low- and moderate-income housing as well as urban renewal.

So, too, do expensive mandates from the Department of Housing and Urban Development and the Environmental Protection Agency, according to Mr. Lindsey.

In a deregulated environment, CRA would work more effectively, he said.

"An urban policy that increases the flexibility and creativity allowed under CRA, and recognizes the wide variety of financial services needed and the enormous diversity of the markets involved could be a powerful tool to those in the business of community development," he said.

As Congress debates changing CRA in the regulatory relief legislation, Mr. Lindsey warned advocates and enemies against taking extreme positions.

"I think that we are about to enter a pernicious debate which may ill serve both the country and the target populations we all care about," he predicted.

The CRA is working and should not be watered down, as bankers suggest, or beefed up, as community activists would like, he said.

"The public does not benefit from periods of extreme policy activism followed by periods of neglect - hot, then cold, regulation," he said. "Public policy should be temperate, consistent, and predictable."

Mr. Lindsey, who spent 1992-93 rewriting CRA rules, questioned whether changing the law would have any effect. While regulators worked to reform CRA, he said banks and local groups started working together and increased lending to low- and moderate-income borrowers.

"While banks and community groups were organizing and partnering locally, we at the national level were ensconced in a two-year effort to rewrite the regulations," he said.

"I sometimes wonder if it was all worth it. After all, the enormous improvement shown in the mortgage data was taking place throughout the nation while I was cloistered with my colleagues in Washington."

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