WASHINGTON - A bank that had been prevented from consolidating because of Community Reinvestment Act deficiencies has received Federal Reserve Board approval after making more loans to American Indians.

The Fed's long-delayed ruling allows First Interstate BancSystem of Montana Inc. to merge seven banks into its flagship subsidiary in Billings. The ruling also may pave the way for a merger of First Interstate BancSystem with a sister company in Wyoming. The deal was unlikely to be approved without the additional lending to the Indian community.

The Fed said the Montana company, which is not related to Los Angeles-based First Interstate Bancorp, had resolved CRA problems at Bank of Colstrip, a subsidiary with $11 million in assets.

First Interstate BancSystem, which has $650 million in assets, is owned by the same family that owns $250 million-asset Commerce BancShares of Wyoming Inc., Sheridan.

|Needs to Improve' Rating

Last October, the Fed rejected an application to merge the sister holding companies because Bank of Colstrip was rated "needs to improve" on CRA compliance. That is the second-lowest grade on the four-point scale.

An examination showed that First Interstate wasn't meeting the needs of the Northern Cheyenne Indian Reservation in Lame Deer. The Fed said the bank "excluded" the reservation from its service area, and found that its efforts to market credit-related services there were "minimal."

In a more recent examination, the Fed found that Colstrip had improved its community lending record.

Gail Small, director of Native Action - a community group on the reservation that complained about First Interstate - said the bank has pledged to make $4 million in loans to reservation residents. Since January it has lent 500,000 to individuals and businesses, almost triple the amount of a year ago, she said.

The bank also plans to install an automated teller machine on the reservation, place a Cheyenne tribe member on its board, and hire a reservation resident as a management trainee.

"It was really worth the fight," Ms. Small said. "This has sent shock waves through Indian country. The loans are coming through."

Neil Klusmann, a spokesman for First Interstate, said it will reapply to the Fed to merge with the Wyoming sister company in three to four months.

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