PEOPLE WHO USE banks in the District of Columbia should be pleased to know that some healthy competition may be allowed in this industry at last. After enacting a half-baked bill a few months ago that systematically excluded some of the biggest banks from competing for customers, the D.C. Council is having second thoughts that are much better ones. A council committee has now approved a measure that would allow the larger banks to acquire D.C. banks if they make substantial commitments -- translation: money in the right places of the city. This is along the lines of what Mayor Barry sought before when the council overrode his veto. Approval is important and urgent.

Under the latest proposal, a new interstate banking office would review all applications for mergers, a function that has rested with the council. Any bank would be allowed to acquire a District bank if it made commitments that include 1) providing $50 million to $100 million in loans or lines of credit within three years, 2) establishing at least two bank offices in specified development areas of the city, 3) hiring at least 200 District residents within three years, and 4) cashing government payroll checks even if the bearer does not have an account with the bank.

Representatives of local banks and the larger institutions now seem to agree that they can accept these general concepts -- so passage of the measure should proceed. The result should be more keen competition, offering the consumer a better market to shop for services -- and offering the city an opportunity to generate big loan money and services for shortchanged neighborhoods. All of this could make a constructive difference -- and the council should seize the chance to improve significantly its earlier actions.