The District of Columbia's young home-rule government has begun grappling with the financial and political intricacies of choosing places to deposit more than $1 billion in city operating and pension funds.

The city's money has traditionally been kept in the U.S. Treasury. The home rule charter, however, gave the city authority to deposit its funds in local institutions.

City officials now trying to develop guidelines on where to place the money are confronting two opposing philosophies on how the city's financial resources can best be used.

Mayor Walter E. Washington's budget director, Comer S. Coppie, believes the primary consideration in chosing a place to deposit city funds should be which institution can offer the most services at the lowest cost, and the best investment potential.

Such an approach would favor the larger banks in the city, because generally the bigger institutions can offer the most economical services and the best investment possibilities,according to an aide to Coppie.

That approach is strongly contested, however, by some minority bankers and some members of the City Council who believe the depository should be chosen in part on the basis of its lending and employment practices in the city.

This approach would favor the smaller financial institutions in the city and especially the four that are minority controlled. These institutions generally make a greater share of their loans in less prosperous areas and have more minorities among their topranking employees and directors.

"The city has a responsibility to utilize its financial resources and help bring about goals that are compatible with what the city wants to be," said Council Chairman sterling Tucker who thinks lending and hiring practices should be a factor in choosing a depository. "I would be willing to get a smaller return on an investment if it produces another kind of return for the city that need just as much."

Coppie's staff is fearful that attached nonfinancial criteria to the choice of a lender could cost the city money and still not achieve its purported end.

"The money that's available now for long term investments is not going to make much difference in a bank's ability to make a 30-year mortgage. There's very little way that the District can have an effect on housing loans," said Eileen Winterble, Coppie's chief of funds management.

There are far-reaching implications to the depository law that the City Council hopes to approve by the end of this year:

An estimated $40 million to $50 million average daily balance of money waiting to be spent now earns no interest for the city while it is deposited in the treasury. At times, that amount can swell to $100 million or more. If the city's money was kept in a commercial institution these surplus funds could be invested on a short-term basis and earn several million dollars interest each year to help ease the city government's financial crunch.

In addition to its $1 billion in operating funds, the city will later have to choose place to deposit $150 million in pension funds. Some city officials and bankers hope some of this money can be recycled into loans for low and moderate-income homeowners.

The financial institutions chosen as the city's bankers will become the institutions on which the paychecks of more than 40,000 city workers will be drawn. These institutions presumably could become the personal bank for some of these employees.

A depository policy that is too stringent on non-financial criteria could scare off some banks who later will be a prime bidding audience for short-term notes that the city will have to sell to help finance its operation.

The city's financial institution, especially banks and savings and loan associations, are a significant political force in the city. Campaign contributions from high-ranking employees of such institutions would be welcomed by political candidates.

Maneuvering over a city depository policy has accelerated in recent weeks, following a decision late last year by the Treasury Department to evict the city as a bank customer.

For two years, the City Council had been unable to draft a depository policy. So in November, the Treasury Department's assistant fiscal secretary, David Mosso, informed Mayor Washington that the department had decided to unilaterally choose a depository for city funds by Feb.1, 1977.

The department prepared plans to ask for bids that would be accepted strictly on the basis of financial criteria. The plan had been discussed with Coppie. Mosso said last week, and would be only a temporary measure until the City Council could approve depository legislation.

The mayor made no objections to the substance of the plan but did request that the date be pushed back one month to March.When the Mayor informed the Council of the Treasury Department's intention, however, Tucker intervened and convinced federal officials that a delay until December, 1977 was necessary.

"Minority institutions and small institutions would have been left out entirely. There would have been no chance for them to compete," Tucker said in an interview last week. "And you know how temporary situations usually become permanent."

Tucker introduced a bill earlier this year that also established criteria for choosing an institution and gave some weight to lending and employment practices. This bill is backed by some minority bankers and, according to some sources, it was drafted by Robert B. Washington Jr., chairman of the D.C. Democratic State Committee and a lawyer for the firm of Danzansky and Dickey. (Tucker refused to identify the author of the bill, acknowledging only that Washington was one of several persons consulting in its preparation).

Council member Wilhelmina J. Rolark (D-8), fearing that the Tucker bill does not go far enough in ensuring minority involvement, introduced her bill last week, which includes credit unions as potential depositories. James D. Vitarello, executive director of the D.C. Commission on Residential Mortgage Investment, helped draft the measure. Rolark's bill favors institutions that promote low-income lending includes credit unions as eligible depositories and gives a 13-member commission the final decision on where funds are deposited. Tucker's proposal leaves that choice to Coppie.

Including lending and hiring practices among the criteria for choosing depositories is a definite boost for the city's four minority-controlled institutions because all four have made a greater share of their loans in the areas spelled out in the legislation. However, the degree to which these employment and loan practices will count will determine whether or not any of the minority institutions will be selected.

Under Tucker's depository law proposal, 16 per cent of an institution's bid to handle a city checking account would be based on its lending and employment practices and 6 per cent of a bid for a city savings account would be based on these practices. In addition, Tucker's bill would allow no more than 30 per cent of the money available for investment to be deposited in any single institution.

Mrs. Rolark's proposal has no proportional weighting, but instead proposes a "brownie point" system and a different formula for determing commitment to city lending. Under this proposal, one source familar with it said, any minority institution making a reasonable bid to become a city depository would almost certainly be chosen.

Either way, at least three to six different depositories are likely to be chosen for city funds. Not all of the city's 32 banks and savings and loans are expected to bid for the city's business, which involves the writing of some 2.5 million checks every year.

The effort to use the city's financial resources as a lever to influence lending and employment practices among financial institutions is part of a continuing feud over whether the banks and savings and loans are allowing the quality of the city to deteriorate by not making housing loans in poorer sections of the city and neighbourhoods where more minorities live.

In the most recent report released on that subject, Vitarello's mortageg investment commission said last week, based on statistics from 1975, the city's banks and savings and loan institutions were not providing adequate loans in many sections of the city east of Rock Creek Park, where potential homeowners could afford the loans but were being denied them because of race.

The report recommended a 10-point housing finance plan designed to increase the home ownership possibilities for residents in the areas that were allegedly sighted. It also recommended adoption of a city depository law nearly identical to that proposed by Mrs. Rolark.

Spokemen for the city's lending institutions said the material in the reportwas outdated and that their lending policies had changed significantly.