Federal savings and loan associations will be able to set up trust accounts, according to a proposed regulation issued yesterday by the Federal Home Loan Bank Board.

This is the last of the major new asset powers granted thrift institutions under Depository Institutions Deregulation and Monetary Control Act of 1980. These powers are intended to give them alternate sources of funds, making them less subject to cyclical housing trends, and thereby to allow them to compete more effectively with commercial banks.

Thrifts wishing to act as trustees, executors, administrators or guardians must be approved by the bank board. They must hold trust assets in a department totally separate from other departments in order to prevent conflicts of interest. S&Ls may not invest trust funds in their own stock or that of their affiliates.

In another action, the band board approved regulations permitting state stock savings and loans incorporated before Mar. 31, 1976, to convert to federal stock charters. Previously, the only way a state-charted stock S&L could obtain a federal charter was to become a mutual institution.

At present, S&Ls are required to keep 5 percent of their deposits in reserve. The reserves can be held as cash or invested in certificates or deposit or in certain government securitiers. Yesterday, the bank board said that S&Ls henceforth will be allowed to keep their reserves in those mutual funds that invest in the same approved government securities.