D.C. Deputy Mayor Curtis McClinton yesterday recommended that the City Council amend pending regional interstate banking legislation to allow for full interstate banking in two years.

The recommendation came during the council's Committee on Housing and Economic Development initial public hearing on a bill calling for District participation in a regional interstate banking arrangement with 11 states, including Maryland and Virginia.

The bill, which was introduced at the request of Mayor Marion Barry, would allow bank holding companies from the southeastern states in the pact to merge with or acquire banks in D.C. provided those states extended the same rights to District banks.

McClinton's recommendation to open the District up for full interstate banking after two years was greeted with mixed reactions by banking officials who testified at the council hearing. D.C. bankers generally opposed opening up the District to national competition absent a national law providing for full interstate banking.

Lucius P. Gregg, vice president for Citicorp -- the banking conglomerate that has stirred controversy with its request for full banking powers in Maryland -- said that his company wants the opportunity to open a bank in the District.

"If the District adopts a strictly regional bill, the economic development consequences will be significant," Gregg said. "The District will have missed a golden opportunity to establish itself as a national and international financial center."

Gregg also argued that full interstate banking would benefit consumers by creating higher rates on deposits, lower rates on loans and increasing the availability of credit.

The regional banking concept has grown out of a concern that big money center banks like Citibank, Citicorp's principal subsidiary, would have a competitive advantage over regional banks if Congress ever approves national interstate banking. Ten states have enacted regional reciprocal bills and about 20 others are expected to act on them this year.

The District's banking community does not want to throw the doors open to competition by adding a full interstate banking "trigger" to the regional banking bill, said Michael P. Ryan, president of the District of Columbia Bankers Association and president of the National Savings and Trust Company. The trigger would open the District to full interstate banking after two years from the date of the District law.

"We're not in favor of a trigger that puts the D.C. banks at a disadvantage," Ryan said after the council hearing. " . . . If it interstate banking is nationwide and everybody is participating under the same set of rules, that's different."

Ryan pointed out that the assets of Citicorp exceed $140 billion, compared with $14 billion in combined assets for the District's 19 banks.

Citicorp and Maryland Gov. Harry Hughes reached a tentative agreement earlier this month that would allow a Citicorp subsidiary to operate statewide in Maryland provided that the company agrees to create at least 1,000 jobs and build a corporate facility in the state. But the agreement has drawn strong opposition from Maryland's banking industry, which is also concerned about competition.

Yesterday, Gregg, who said Citicorp has no plans to acquire a major District bank, said fears about stiff competition are unfounded.

"Some have expressed the fear that if large banks are permitted entry, they will swallow up the local banks and show less interest in the community," Gregg said. "This simply is not the case. . . . The fear of dominance by big banks is overblown."

Gregg noted that New York agreed in the early 1970s to allow the big New York City banks to compete throughout the state and Citibank, despite a major effort, has been unable to capture more than 3 percent of the upstate market.

"If we cannot capture more than 3 percent of the market in our own back yard, surely we will not be able to dominate the District market," Gregg said.