Faced with an unexpected ruling by the Treasury Department making United National Bank of Washington ineligible to participate in the federal Minority Deposit Program, James Madison Ltd. has decided to put UNB up for sale.

Besides returning UNB to minority-bank status, the proposed sale obviously represents a significant opportunity for minority investors in the District. If James Madison is unable to sell the bank to minority investors, however, it will merge it with Madison National Bank, eliminating all vestiges of technical control by blacks.

Founded in 1964 primarily to serve the banking needs of the District's black community, UNB was one of only two banks controlled by blacks when its board agreed to become a subsidiary of James Madison. The other black-controlled bank is Industrial Bank of Washington, which was founded during the Depression.

In a letter to stockholders last month, K. Donald Menefee, James Madison's chairman, noted that Treasury officials took the "unexpected step" of decertifying UNB as an institution eligible to participate in the Minority Deposit Program.

Under the program, federal agencies and major corporations are encouraged to do business with qualified banks owned or controlled by minorities and women. In his letter to shareholders, Menefee contended that the merger notwithstanding, "UNB has always been operated overwhelmingly by African Americans and has long provided valuable services to the Washington, D.C., minority community."

That doesn't change the fact, however, that UNB is owned and controlled by James Madison, which filed an appeal but apparently to no avail. If a deal can't be struck with a minority investor group, James Madison said it will merge UNB into its principal subsidiary, Madison National Bank. "By combining the two, we would hope for a greater level of efficiencies," said Richard Seaman, senior vice president for corporate development at the District-based James Madison.

Clearly, however, UNB is less valuable to James Madison as just another subsidiary. Without the minority deposit program, "neither one of us is helped," Seaman acknowledged. "We have lost some of the value of UNB."

It certainly doesn't take a degree in accounting to reach that conclusion. Nor does one need a calculator to figure that James Madison would benefit more from selling UNB. The sale would generate a quick and welcome boost to James Madison's capital base, though Menefee, in his letter to shareholders, maintained that the bank-holding company remains well-capitalized. James Madison nonetheless reported a net loss of $16 million in the third quarter, a development that management attributed to a continued rise in nonperforming assets, an increase in the company's loan-loss provision, a loss on other real estate it owns and "certain write-offs resulting from a restructuring of the company's subsidiaries."

So a sale of UNB is likely to be more beneficial than merging it into Madison National Bank. In fact, the Treasury's belated ruling may be a blessing in disguise for James Madison and UNB. "Such a sale would permit UNB to renew its certification as a qualifying minority institution, with all the benefits that status confers in terms of providing locally oriented investment in the Washington community," Menefee suggested to stockholders.

"We believe that there's a benefit to the UNB charter, a minority bank serving the minority community," Seaman insisted.

A group of minority investors negotiating with James Madison officials to buy UNB, or perhaps some other group, now have an opportunity to prove just how valuable the franchise is, not merely as a bank to serve the needs of blacks, but as a bank, period.

With approximately $90 million in assets, UNB has a solid base from which to build and become a more competitive player in the District's banking industry. Its total assets, in fact, make it the ninth-largest black-owned or controlled bank in the United States, according to the latest rankings by Black Enterprise magazine.

Five years ago, when James Madison announced the merger agreement, Samuel L. Foggie, then president of UNB, explained that the bank needed to expand its services to the minority community and that the pact with James Madison was the only way to do it.

The problem with most black-owned banks is that their owners have persisted in operating them primarily as banks for blacks, restricting the growth of those institutions.

Racism, redlining -- the systematic refusal by lending institutions to issue mortgage loans on property in neighborhoods considered to be deteriorating -- and a host of injustices over the years made it difficult and in many instances impossible for blacks to obtain loans and other banking services from nonminority banks. Black-owned banks, as a result, have operated almost exclusively as small institutions serving predominantly black communities.

It remains important that those banks continue their commitment to under-served communities. The fact is, however, that no black-owned bank is big enough to carry out that commitment effectively. Safeway National Bank of Chicago, the country's largest black-owned bank, had assets of only $164 million last year. Indeed, the combined assets of the eight largest black-owned banks in the United States equal those of James Madison, a medium-size District banking firm.

Black-owned banks would be better served -- indeed their customers would be -- if the owners resolved to build competitive institutions and not just black banks. In other words, the appeal of black-owned banks has to be much broader if they expect to build the strong deposit and capital bases that they desperately need and desire. The failure two weeks ago of Freedom National Bank of New York -- until then the country's fourth-largest black-owned bank -- is a striking example of a need for change.

If black-controlled banks are to be significant players in their communities and their industry, then it's imperative that they expand their bases by providing competitive products and services at locations that are accessible to savers and borrowers in all areas of their respective markets.

Operators of black-owned banks need to prove they can take institutions with valuable charters and operate them competitively with other banks. To do that, they need to employ the best-qualified people available, regardless of race, and reach out to investors of all types not as a black business but as a successful business that just happens to be controlled by blacks. There is no reason why a bank controlled by blacks in the District, for example, can't accumulate assets of $1 billion or more.

The Treasury Department's action, which prompted James Madison to offer UNB for sale, provides a new opportunity for some group of minority investors to prove that it can be done.