By one city official's estimate, District of Columbia banks and other institutions are holding as much as hundreds of millions of dollars in deposits and other funds that are unclaimed for long periods by owners who cannot be located.

Under current D.C. law, it is possible for the banks -- in effect -- to confiscate the money and use it for their own purposes.

To end this practice, the D.C. City Council recently enacted legislation that will transfer all dormant accounts from these private institutions to the city government if the owners cannot be found. The millions of dollars involved will then become a windfall, not to private firms, but to D.C. taxpayers.

The bill must be reviewed by Congress before it goes into effect, probably next spring. But, unless it is vetoed by the nation's lawmakers, its terms will be retroactive to last Jan. 1.

This would mean any firm that has confiscated dormant funds since that date would still bear responsibility for turning the funds over to the city.

The money involved chiefly represents deposits and other financial assets belonging to individuals who allowed their accounts to remain inactive for long periods of time and who, in most instances, dies or else moved out of the area without leaving any forwarding addresses.

The legislation was proposed to the council by Mayor Marion Barry to plug a loophole in the city's legal code. The current law, Barry wrote in submitting a draft version of the bill, "does not provide for the disposition of unclaimed property," but makes the banks and other institutions responsible for paying any claims by the unlocated owners, their heirs or creditors.

Herbert Simmons Jr., director of the D,C. Office of Consumer Protection, testified at a congressional hearing in July that the policies of local financial institutions on dormant accounts are spotty.

"In fact, several of the banks we contacted told our researcher that they were not voluntarily giving out any information on their unclaimed property policies," Simmons said. "One bank indicated that this was under direct order of the president of the bank."

Simmons said four major savings and loan associations in the District had accounts totaling $26 million that they considered dormant at the end of 1978. Commercial banks had similar accounts totaling $25 million.

"When one speculates as to the amount of unclaimed property remaining in the hands of utility companies, trust companies, stock brokers, insurance companies and others and combines this with the amounts indicated above . . . it becomes clear that the amount of loss to D.C. consumers may be in the hundreds of millions of dollars," Simmons testified.

Simmons said that many depositors are unaware that the banks will close or stop paying interest on accounts that remain inactive for long periods.

"One . . . consumer wrote in a complaint that he used a certain account as a 'super emergency' account, and therefore purposely let the account lie dormant while he anticipated the interest would continue to enlarge his account," Simmons said.

In on recent instance, a major D.C. bank -- National Bank of Washington -- dipped into its dormant accounts to shore up its profits when they were sagging.

According to the bank's 1979 annual statement it transferred $746,692 from dormant accounts during the fourth quarter, converting them into profits.As such, they represented 11 percent of the bank's earnings for the year.

The newly enacted D.C. law is similar to a uniform measure governing disposal of unclaimed property that has been adopted by 26 states, including Maryland and Virginia.

Under provisions adopted by the District measure sponsored by council member David A. Clarke (D-Ward 1), bank and savings and loan accounts will be considered dormant if they are inactive and their owners have not contacted the financial institution for 10 years. The same time span will apply to valuables left in a safe deposit box.

Generally, other accounts -- utility companies, stockbrokers and insurance companies -- will have a seven-year period. In a few instances, the time span will be as short as two years.

The law provides that when an account becomes dormant the bank or other institution must make a true effort to find the money's owner and, if the person cannot be found, the mayor's office must be notified in an annual report. The mayor then will publish a newspaper advertisement for two consecutive weeks listing the names and last known addresses of owners of sums over $50, who then may claim their funds from the banks or institutions.

After a period, all the unclaimed funds will be turned over to the city treasury, although the city will be liable to pay any later valid claims. The new measure requires the city to set up a trust fund of at least $100,000 to meet such claims.

According to the council Judiciary Committee's report on the bill, 30 percent to 50 percent of the bank accounts advertised under similar procedures in other states subsequently have been returned to their owners.