A D.C. City Council committee approved a bill yesterday that would significantly alter the District's new regional interstate banking law by allowing banks outside the region -- including giant Citicorp of New York and other bank holding companies -- to acquire District banks provided they make a substantial financial commitment to the city.

The measure, adopted by the council's Housing and Economic Development Committee, was fashioned to resolve a disagreement between Mayor Marion Barry and the council over the scope of interstate banking.

The council passed a law in September limiting interstate banking activities to banks in the District and 11 southeastern states despite Barry's push for provisions to allow banks outside the region to enter the District sooner if special commitments were made to economically depressed areas of the city. Barry vetoed the legislation but the council voted Oct. 8 to override the veto.

Although the bill voted out of committee yesterday and expected to be taken up by the full council next month would not replace the existing interstate banking legislation, it would make a number of important changes.

Under the measure, a new interstate banking office, instead of the council, would review all applications for mergers.

Also, any bank inside or outside the region would be allowed to acquire a District bank if it made commitments that include providing $50 million to $100 million in loans or lines of credit within three years, establishing at least two bank offices in targeted development areas of the city, hiring at least 200 District residents within three years, and cashing government payroll checks even if the bearer does not have an account with the bank.

Nonregional banks would not be allowed to establish a new District bank for three years, and then only if the required financial commitment had been met.

Council member Charlene Drew Jarvis (D-Ward 4), chairman of the committee who introduced the new banking bill, said the proposal requiring that regional as well as nonregional banks make financial commitments is an effort to standardize what the city already is doing in practice.

Since adopting the interstate banking law, the City Council has recommended that the Federal Reserve Board approve two applications for mergers involving District banks. Sovran Financial Corp. of Norfolk plans to acquire D.C. National Bankcorp, parent company of D.C. National Bank, and United Virginia Bankshares plans to buy NS&T Bankshares Inc., the holding company for NS&T Bank. In both cases, bank officials made financial commitments to the city.

During the debate over interstate banking, New York's Citicorp, which lobbied for a banking license, was pitted against local banks, which argued that large money centers such as Citicorp would present unfair competition if granted full banking rights. The only banking function that money centers currently are prohibited from practicing in the District is collecting deposits.

Yeterday, representatives for both groups reacted positively to the new proposal.

"This is very positive for Citicorp," said Lucius P. Gregg, a Citicorp vice president who headed the company's lobbying effort. "It is an opportunity for the money centers to join with the local banks in doing the kinds of things the District has to do economically."

Michael Ryan, president of the D.C. Bankers Association, said local bankers accept the general concepts in the new bill. He said the existing bank franchises will be more valuable because the amount of interstate activity will be limited.

In addition to Jarvis, committee members Frank Smith (D-Ward 1) and William Spaulding (D-Ward 5) voted to approve the banking proposal. Council member Betty Ann Kane (D-At Large) abstained.

Smith, who has always favored granting banks outside the region a license in exchange for financial commitments, said the council is sending the correct message to businesses as well as consumers.

"The bill goes in the right direction and will free up more dollars for individuals," said Smith. "I think the mayor got a lot of what he wanted."