THE D.C. COUNCIL can't undo the damage done to those thousands of customers of the now-bankrupt Latin Investment Corp. who stand to lose between $6 million and $13 million in hard-earned life savings because their deposits were uninsured and unprotected. And the council certainly can't void the official thoughtlessness and dithering by District and federal agencies that enabled Latin Investment to operate for years under the false pretense it was a bank. But the council can correct glaring deficiencies in the D.C. Regional Interstate Banking Act, which it passed in 1985. That began yesterday with council passage of emergency legislation, sponsored by D.C. Council member Charlene Drew Jarvis. It gives the banking superintendent's office "clear, direct and immediate authority" to enforce the bank supervision mandate it has had since 1986.

Until yesterday, the District operated under a crazy quilt of laws in which authority for the approval of bank charters, enforcement of banking laws and investigation of bank or corporate fraud were variously vested with the banking superintendent, the Department of Consumer and Regulatory Affairs, the Corporation Counsel, the Metropolitan Police Department and the U.S. Attorney. With yesterday's action, some of the confusion has been eliminated. Now at least, the banking superintendent has authority to investigate suspected violations of city banking laws, where warranted to issue subpoenas and cease-and-desist orders against unsafe banks or "bank-like" corporations and to seek court orders restraining an offending company or freezing its assets. Had these arrows been in the superintendent's quiver -- and used aggressively two years ago -- the Latin Investment Corp. fiasco might have been averted.

But yesterday's council action was only a first step toward making the city's bank regulatory system better serve the public interest. In the past, the council has given scant attention to developing a bank supervisor's office that can assure the safety and soundness of locally chartered institutions and maintain a financial structure deserving the confidence of local depositors. The council -- under the direction of Mrs. Jarvis and her Housing and Economic Development committee -- seriously hampered the operations of the superintendent's office. It arrogated to itself a final say over the actions of the superintendent, even in the delicate area of bank charter approvals. When banking legislation is taken up early next year, the council should quickly remove itself from that politically charged area.