With some of the nation's largest banks preparing to pour billions of dollars into low-income neighborhoods, smaller institutions fear they'll be undercut in their own community reinvestment efforts.

The big banks are acting to gain federal and state regulatory approval for mergers, and to avoid conflicts with community activists. Major institutions, including Boston-based Fleet Financial Group, Chase Manhattan Corp., and First Chicago NBD Corp., have agreed to lend billions at below- market rates for low-income housing and small businesses.

Community bankers say their own efforts to meet the lending requirements of the Community Reinvestment Act are bound to look puny by comparison.

"Our concern is that in the final outcome, the community banks will end up appearing on paper as if they aren't living up to their CRA mission," said Donald S. Glass, president of the Community Bank League of New England.

"It's going to make it more and more difficult for small community banks to do their fair share of community reinvestment-type loans," he added.

The big bank commitments, which feature favorable loan terms, could swamp the market, bankers say. Why would low-income borrowers go to a small institution, they ask, when they can obtain loans from larger banks at rates far below what community lenders can offer?

"The small community bank is left hanging in the breeze," said Mr. Glass.

Of particular concern to community institutions is the prospect that loan contracts with community groups or charities could be lost at the last minute, leaving them with nothing to show for their efforts during CRA exams, Mr. Glass said.

Bankers and bank trade group executives are hoping that regulators will take these situations into account when giving out CRA performance reviews. But they're not exactly optimistic.

"When we are examined by the regulators, they are rather naive about local conditions in this regard, and they do criticize us for not making the kinds of loans or participating in the kinds of loans that some of these big institutions make," said Charles J. Hamm, president and chief executive of Independence Savings Bank in Brooklyn.

"If society is served, it's wonderful, but the regulators simply have to know what is going on, because they expect us to do more and more and often we are stymied."

"The examiners tend to come around and expect numbers," said Richard Loundy, chairman of Devon Bank in Chicago. "They want proof that you're doing something, and they don't necessarily know how difficult it is to attract the application even."

"This does feed the fire," admitted Charles Grice, of the Community Reinvestment Institute in Austin, Texas. "The examiners tend to lump banks more or less together and assume that what's good for Wells Fargo is good for all banks in California. They expect that all banks will have commitments."

In Massachusetts, bankers are particularly concerned about Fleet's agreement to make small-business loans at the prime rate, which community banks can't afford to match.

"I think there's a lot of concern out there," said Donald McGowan, president and chief executive of Flagship Bank and Trust Co. in Worcester, Mass. "There's a general perception that that could be very disruptive to the small-business market.

The regionals reject the idea that they are squeezing small institutions out of the market.

"This argument is brought up annually by smaller banks," said Carol Parry, managing director for community development at Chemical Banking Corp. "There's lots of room for other lenders in the marketplace. I don't think there has been any evidence over the last few years that large banks trying to make their CRA goals have hurt small banks."

On the other hand, small banks show little concern over competition for low-income housing loans. And Connecticut bankers aren't fazed at all by Fleet's commitments in that state. In fact, they'd welcome the help.

"I think their efforts will help us, not hurt us," said William McGurk, president and chief executive of Savings Bank of Rockville. "If they snag a CRA loan at an attractive rate, well, we'll get the next one. We're not in a precarious position regarding CRA loans."

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