Members of Washington's banking community, along with boosters of the local economy, persist in touting the District as a growing world financial center. The District is unlikely to become a world financial center, however, as long as political and local banking interests continue to hold a decidedly narrow view of the competitive environment.

The banking industry in the District has undergone dramatic changes since the initial D.C. interstate banking law was approved in 1985. Regional interstate mergers not only have produced significant changes in the leadership of the District's banking industry but also can be expected to give a substantial boost to the local economy.

Even more important, where local and regional bankers are concerned, reciprocal banking laws have given them time to develop institutions that are large enough to withstand competition by industry giants from New York and other money centers. Interstate acquisitions by bank holding companies such as MNC Financial Inc. of Baltimore and Sovran Financial Corp. of Norfolk have made it less likely that they will be taken over by big out-of-state institutions.

In short, local control of the banking industry in the Middle Atlantic region is virtually assured for several years. That was the primary goal of bankers in the region in pushing for legislation that permits reciprocal mergers across state lines. They feared being gobbled up by banking giants from outside the region and their inability to compete if those institutions were given early access to local markets.

"The initial results of interstate banking in the Middle Atlantic states have answered the wildest dreams of the optimists, and it has not resulted in the feared out-of-area takeover," observed Arnold Danielson, an industry analyst and consultant who heads a Rockville firm.

Deep-seated fears persist among local bankers, nonetheless. Competition, not takeover, is their primary concern. That is especially true in the District, though the industry trade group representing area financial institutions shares those concerns. Thus the Greater Washington Financial Institutions Association (GWFIA) is waging an intense fight to block 11 companies from obtaining D.C. bank charters.

GWFIA has filed a lawsuit against the 11 companies and the D.C. government in an attempt to block the 11 organizations -- some of them holding companies from outside the region -- from obtaining bank charters under an obscure District law. The bank and savings and loan lobbying group contends the applicants are trying to enter the District through a loophole in the local banking law. Applications for the 11 charters were made shortly before the current D.C. banking law became effective last year.

Presumably those companies would have expanded powers to provide brokerage, insurance and other services that federally chartered banks in the District are precluded from offering.

Until the District approved a new banking law that provides for the appointment of a bank superintendent, the Comptroller of the Currency approved all applications for bank charters in the District. Indeed, the comptroller's office has given preliminary approval to most of the so-called loophole bank applicants.

Last week, however, the D.C. Council Committee on Housing and Economic Development, under intense lobbying by GWFIA, rejected proposed regulations that would have permitted the new District banking superintendent to grant expanded powers on his own authority to locally chartered institutions. The committee decided instead to spell out those powers in legislation that is yet to be developed.

"Of course we did our share of lobbying and we got some of the things that we wanted," acknowledged Samuel Foggie, president of GWFIA. "We don't want {banks with D.C. charters} to do what we can't do."

The committee's chairwoman, council member Charlene Drew Jarvis, says her panel is receiving information on how the new statute should be drawn. GWFIA obviously is confident that it can influence that process by proposing and lobbying for a law that drastically limits powers of the 11 applicants for D.C. charters.

Jarvis says that the issue involved is one of safety and soundness and that her primary motive for wanting the banking powers covered by legislation is her concern for depositors in the District.

Nonetheless, the committee's action, which the bankers' lobby strongly supports, essentially accomplishes what GWFIA probably could not in the pending lawsuit. "I kind of hope that the suit will wane away in light of this and it probably will," Foggie acknowledged.

No doubt the suit will be abandoned as Foggie indicated. It's also possible D.C. bank charters will become less attractive in the wake of industry and legislative resistance.

In the meantime, there is little else to suggest that major financial institutions from outside the region are prepared to enter the District through acquisition of D.C. banks. That type of interstate merger by those institutions appears to be out as long as they're required to comply with stringent community investment requirements imposed by the council.