Mayor Marion Barry's administration yesterday opposed legislation offered by D.C. Council member Charlene Drew Jarvis (D-Ward 4) to prohibit all but full-service banks from operating in the District, and Jarvis said after a hearing that she is considering alternatives to the proposal.

Curtis McClinton Jr., deputy mayor for economic development, testified that a better approach would be to allow financial institutions that offer less than full services to come into the District but to apply strong community investment rules to them.

The issue centers on how to deal with limited-service banks, so-called nonbank banks, which escape some federal regulations by not offering all services. Nonbank banks can make commercial loans or accept demand deposits, such as for checking accounts, but cannot do both. Eleven applications have been filed with federal regulators to open nonbank banks in the District.

Jarvis, chairwoman of the council's housing and economic development committee, has called some of these institutions "boutique" banks that cater only to rich clients. She has proposed legislation to prohibit limited-service banking.

The 11 nonbank-bank applications were filed with the U.S. comptroller of the currency just before a new city law went into effect giving the District authority to charter banks. The new D.C. law requires companies acquiring District banks to make certain kinds of investments in the community.

"These institutions are a fact of economic life," McClinton testified yesterday. "While it is true that the District needs increased services from and competition among full-service banks, it is a misconception that limited-service banks have nothing to offer the citizens of this city."

McClinton said one of the 11 applicants to the comptroller, Bankers Trust New York Corp., has demonstrated its intention to be a good corporate citizen by agreeing voluntarily to invest between $50 million and $100 million in the community. The community investment would be required under the new city law, but that law does not apply to the institution.

"Why shut the door on them?" McClinton said, adding that his office has started negotiating with some of the other applicants and hopes to get similar commitments before the comptroller makes a final decision on the applications.

Jarvis decided to continue the hearing on the issue in the fall and said she will consider other options before making a final recommendation to her committee.