A turf battle between two federal bank regulators delayed the closing of a West Virginia bank that, when finally shut Sept. 1, helped generate the biggest loss in nearly a decade to the federal fund that insures bank deposits, House Banking Committee Chairman Jim Leach (R-Iowa) said last night.

The battle between the two agencies over First National Bank of Keystone, W.Va., allowed rampant fraud at the bank to go unchecked for months longer than necessary, Leach said. A Leach spokesman said it is unclear whether that delay increased the $750 million cost to the government.

Leach said that a review by his staff of conflicts between the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency shows that "the FDIC was stymied [by the OCC] at key points in its desire to conduct reviews of the bank's activities."

Leach introduced legislation last night that would give the head of the FDIC the authority to send examiners into a troubled bank without getting approval from the FDIC's five-member board--a move that Leach believes would have sped up detection of problems at the bank. Vacancies on the board prevented the FDIC's current chairman, Donna Tanoue, from garnering enough board votes to override OCC objections to FDIC examiners coming into the troubled bank, Leach said.

When the bank was finally shut, examiners found that $515 million of the bank's $1.1 billion in assets were missing or never existed.

OCC officials said yesterday that FDIC examiners worked side by side with them in the bank on many occasions starting in 1996.

"There was extensive coordination and communication between the OCC and the FDIC about the handling of Keystone," said OCC spokesman Robert M. Garsson. "We regret any misimpression that that was not the case. We agree completely that good coordination is not only good government but good supervisory policy."

Garsson added: "We, like the FDIC, had considerable concern . . . but what led to the closing of this institution was fraud, which the OCC found."

Leach's action comes a week after bank regulators in general were chastised at a Senate money-laundering hearing for failing to enforce anti-money-laundering laws strictly enough. The inspector general of the U.S. Treasury also criticized the OCC in particular for what he said were serious deficiencies in the agency's oversight of bank operations often targeted by money launderers.

CAPTION: Rep. Jim Leach says the dispute was costly to the bank insurance fund.