Treasury Secretary Donald T. Regan yesterday outlined a hands-off policy for the nation's financial institutions, warning Congress against any curbs on money market funds or special help for financially ailing savings and loan associations or mutual savings banks.

Regan also told the Senate Banking Committee the administration opposed special tax incentives to encourage savings.

All of these short-term measures have been proposed as a way of aiding the troubled thrift institutions, which are facing their worst crisis since World War II and may lose a billion dollars or more this year if conditions do not improve.

Testifying at the first of seven oversight hearings by the committee, Regan said thrifts were in no critical need. He reiterated that the best remedy for thrifts is the administration's policy of less government intervention and bringing down interest rates. The financial services industry, he declared, must rely more on market forces and less on government regulation to determine is future.

The administration, he said, repeatedly, is committed to establishing a "level playing field," meaning that all depository institutions would have the power to compete equally with each other and with nonbanking institutions. To this end he called for reduced specialization of services, an accelerated phrase out of interest rate ceilings, and a reduction in the number of federal agancies (currently seven) regulating banking.

The administration plans to review what he termed "outdated" laws that prohibit banks from expanding across state lines and from dealing in securities. Regan stressed that the administration has not yet taken a stand on these issues, although he is personally known to favor a breaking down of these 50-year-old barriers.

Reagan did say that the administration would continue to monitor the financial condition of the thrift industry and would be prepared with "alternative approaches to its problems if there is a significant deterioration in its situation." He omitted any mention of a rescue plan outlined a couple of weeks ago by Comptroller of the Currency John G. Heimann.

The specter of money market funds hung over the hearing, as legislators and regulators spoke of the large outflow of funds from thrift institutions and small banks. Regan, who as chairman of Merrill Lynch was the genius behind its Cash Management Account -- a king of super money market fund for the affluent -- was questioned about his objectivity. His response drew laughter. "I understand the problem, having created it," he said, "But I think I can solve it."

Regan disagreed with committee chairman Jake Garn (R-Utah) that third-party checking permitted by money market funds is a banking function and therefore should be subject to reserve requirements. Furthermore, he contended that controlling money market funds would not stop the outflow of funds. Even small-town savers are sophisticated enough to put their money in Treasury bills, Regan said.

Regan clashed with Sen. William Proxmire over the president's economic policies. The Wisconsin Democrat questioned the credibility of the policies, and called "extraordinary" Regan's explantion of the administration's opposition to tax incentives at a time when savings are at a low rate.