The Treasury Department has thrown its weight behind the Commerce Department's bid that Commence rather than Housing and Urban Development should control a proposed program designed to attract and keep businesses in cities and depressed areas.

The program, to be known as the National Development Bank, would be a multi-billion dollar operation that would offer incentives, including direct grants and low-cost loans, to business willing to create jobs in distressed areas.

The Department of Housing and Urban Development, which is co-ordinating the work of the administration's task force on urban and regional policy, has a competing proposal for a Community Development Bank that would be under HUD's control.

It is thought such a bank would be a centerpiece of the urban and regional policy the President is expected to announce later in this month.

The Commerce proposal apparently would get the government more directly involved in lending to business that operate in distressed areas than would the HUD proposal, which relies more on mortgage insurance and programs providing for low insurance loans through private institutions.

Commerce and HUD have been feuding with one another over which agency should take the primary role in economic development.

A White House meeting today, chaired by domestic policy chief Stuart Eizenstat, will thrash out, among other things, who should run such a bank and what form it should take.

The National Development Bank that Commerce and Treasury back would have three major functions:

Make direct loans or guarantee loans up to 75 percent of the capital needs of a firm locating in a distressed area or refurbishing its facilities. The loans could be up to $15 million and would normally be at rates near Treasury borrowing rates.

Boost the amount of tax-free development bonds that can be sold to finance local industrial projects from$5 million to $20 million.

Create a secondary market for the loans private lending instittutions would make to finance the remaining 25 per cent of capital needs the bank would not supply. Such a market also could accommodate similar loans to small and medium-sized businesses that were not assisted by the bank.

The HUD proposal would not do direct lending but would "co-insure" risks taken by private lenders in cities.

In a letter to Sen. Donald Riegle (D-Mass.), Harris calls for a community development bank that has a "new, national mortgage insurance program for investments in the acquisition, construction or rehabilitation of commercial and industrial plants or office space." She also proposes a program for low interest loans through private lending institutions for business investment in "distressed communities."

The HUD proposal also envisages a secondary market and an increase in industrial development bond ceilings.

According to the Treasury-Commerce proposal, locating the bank in the Commerce Department would make sense because it would be easier to co-ordinate with existing programs from the department's Economic Development Administration.

The proposal suggests that EDA could provide up to 15 percent of a firm's capital needs to a maximum of $3 million. The Economic Development Administration now makes limited loans and grant to private business but has provided most of its money to state and local government projects designed to promote economic development.

Treasury and Commerce had competing proposals, but within the past month combined them into one proposal. Treasury had never wanted to keep the bank under its control.

The initial Treasury proposal estimated the bank would spend $7 to $10 billion over three years, but the current program contains no spending estimate.

HUD argues hat it could put such a community development bank into place quickly because it has expertise.

In her letter to Riegle, Harris pointed out that the Federal Housing Administration could provide the insurance program and the Government National Mortgage Association "has long experience in managing secondary mortgage markets and in offering low interest-rate mortgage credit."

She noted that HUD already provides the greatest amount of funds to community and economic development.

Commerce Department Secretary Juanita Kreps and HUD Secreatry Harris have taken swipes at each other over who should have primary responsibility for economic development.