The notion of a small D.C. bank holding company establishing a nonbank bank may strike some as ludicrous, but it is probably one of the smarter moves being considered by smaller financial institutions. Indeed, some of the larger bank companies in the region may find it advantageous to establish nonbank banks in certain markets.

The so-called loophole being used by big bank holding companies to get into areas outside their primary markets offers an opportunity that many of their smaller counterparts can ill afford to ignore. Until now, few smaller bank holding companies have elected to jump through the loophole.

The controversial loophole in the federal Bank Holding Company Act allows bank holding companies to get around a ban on interstate banking by establishing limited-purpose banks in other states. The limited-purpose banks may offer consumer banking services or they may make commercial loans, but not both. Most applications for nonbank-bank charters are for consumer banks.

Parent companies of these hybrid institutions get around interstate banking restrictions by limiting the scope of their operations. But the nonbank banks are widely considered as vehicles to establish de facto interstate banking.

Typically, smaller banking institutions have bemoaned the threat of competition from nonbank banks in their markets. But the chairman of a small D.C. bank holding company, who last week confided plans to go the nonbank-bank route, apparently feels less intimidated than some by the loophole or the competition. It was implicit in his remarks that his strategy essentially is: If you can't lick them, join them.

Critics of the strategy might consider it unwise to stray too far from the market with which the company is most familiar. Or, they might point out with some justification, perhaps, that a nonbank-bank venture may be a less-than-cost-effective operation for a small holding company.

Those misgivings may lie in the assumption that a small bank holding company might attempt a venture in a market too far from its more familiar base. But there is a case to be made for a D.C. bank holding company, for example, establishing a nonbank bank in any of several Maryland or Virginia locations. The Middle Atlantic region is a natural market for financial institutions in the District, Maryland and Virginia. The fact that most major institutions in the region have agreed to share a common electronic banking network is ample evidence of that.

At last count, 332 applications for nonbank-bank charters were awaiting approval by the comptroller of the currency. At least 27 of those applications are for proposed nonbank-bank locations in metropolitan Washington. Only American Security Corp., Washington Bancorp. and Suburban Bancorp are holding companies with headquarters in metropolitan Washington.

Assuming that Comptroller of the Currency C. T. Conover approves several, if not all, of the 27 applications -- and there is no reason to believe that he won't, given his position that nonbank banks are legal -- interstate banking would be a reality in metropolitan Washington. It is a virtual necessity, therefore, for local bank holding companies to consider the available options.

Interstate banking in some form was very much on the minds of those bank executives who in recent years formed bank holding companies. Indeed, almost all executives of recently formed bank holding companies here acknowledged that those entities were formed to take advantage of changes that would lead to interstate banking.

Anyone who doubts that nonbank banks are a form of interstate banking is asleep at the wheel.

It's almost a certainty that nonbank banks will be a fact of life here before the District and neighboring states can agree on a interstate banking pact. The latter, like those in other states, ostensibly would bar money-center giants and other big banks from acquiring or merging with institutions here.

But relying on that premise may be more ludicrous in the final analysis than taking advantage of the nonbank-bank loophole. The truth is, the money-center banks already are firmly established here and in other areas of the country through what the industry euphemistically refers to as commercial loan production offices. Some local banking institutions have LPOs in other states. Call them what you will, LPOs are essentially backdoor entries to interstate banking.

Indirectly, Walter B. Wriston, the former chairman of Citicorp, laid out the game plan for the reluctant dragons among bankers in a recent address here. Said Wriston: "When you consider that we have operations in 40 states -- we have more people outside New York than in -- I think you could argue that the train is moving out of the station." relying on that premise may be more ludicrous in the final analysis than taking advantage of the nonbank-bank loophole. The truth is, the money-center banks already are firmly established here and in other areas of the country through what the industry euphemistically refers to as commercial loan production offices. Some local banking institutions have LPOs in other states. Call them what you will, LPOs are essentially backdoor entries to interstate banking.

Indirectly, Walter B. Wriston, the former chairman of Citicorp, laid out the game plan for the reluctant dragons among bankers in a recent address here. Said Wriston: "When you consider that we have operations in 40 states -- we have more people outside New York than in -- I think you could argue that the train is moving out of the station."