The failure of Home State Savings Bank in Cincinnati and the subsequent closing of the rest of Ohio's state-chartered, privately insured savings institutions Friday have dramatized the differences between federally insured institutions and the rest of the thrift industry.

The nation's privately insured savings institutions typically pay higher interest rates to depositors than do federally insured institutions. But the privately insured institutions are not backed by the full faith and credit of the United States government -- meaning the Treasury Department -- in case of failure.

In the past year, at least two other failures of state-chartered thrift institutions have occurred in California and Nebraska, with customers unable to get their entire deposits back.

Several states besides Ohio -- Georgia, Maryland, Massachusetts, North Carolina and Pennsylvania -- now have private insurance systems as alternatives to federal deposit insurance. These funds cover 451 savings and loan institutions with $17.8 billion in deposits. Although they are state-chartered, none is backed by a state government's financial resources. (The failures in California and Nebraska involved different types of depository institutions also covered by private insurance).

State funds vary widely. Three states have insurance funds administered by a few state employes who don't evaluate the soundness of the institutions they cover and who essentially "hope nothing goes wrong," said one insurer.

Maryland, Massachusetts and North Carolina, on the other hand, have risk-management programs with appropriately trained personnel to evaluate the institutions they insure.

Maryland Savings Share Insurance Corp. protects $7.2 billion in savings at 102 state chartered thrifts. Its reserves amount to $167.8 million, a ratio of 2.3 percent to deposits. Despite rapid growth of deposits last year, that ratio remained constant. Moreover, MSSIC has a central reserve fund of $80.8 million available from members and lines of credit of $60 million on a consortium of banks.

MSSIC's president, Charles C. Hogg III, said depositors come first ahead of other creditors should liquidation become necessary. "If necessary, we would use MSSIC funds while simultaneously selling the [failed thrift's] assets," he said. Asked if customers could expect a delay in getting their funds, Hogg replied, "It would be highly unlikely."

Unlike the Ohio fund, which does not limit borrowings as a percentage of liabilities, MSSIC limits borrowings to 15 percent. So a Maryland S&L never would have been permitted to have borrowings of more than 50 percent of liabilities, as Home State did. Moreover, a preliminary check by Hogg indicated no large MSSIC-insured S&Ls had any dealings with ESM Government Securities Inc., the brokerage firm responsible for the downfall of Home State and other institutions.

MSSIC charges a uniform premium to insure both weak and strong Maryland thrifts, but a risk-based system being studied would impose higher premiums on riskier institutions, Hogg said.

Should such a system go into effect, customers would not necessarily know which institutions were riskier, however. Under the disclosure law recently passed by the Maryland legislature, each institution must reveal its financial condition to anyone seeking it, but the law does not define what constitutes a statement of financial condition.

MSSIC was founded in 1961 in the wake of S&L scandals that rocked the state. Since that time, no depositor has lost a penny.

Unfortunately, that may not be the case in Ohio. The Ohio Deposit Guarantee Fund, which insured Home State, has reserves of $126 million. Losses are reported to range up to $150 million.

Like all private funds, Ohio Deposit Guarantee Fund is not backed financially by the state. However, the repercussions of Home State's failure were such that the legislature moved immediately to create a new fund to insure the other state-chartered thrifts. The new fund is composed of a $50 million state loan and $40 million in assessments against the 70 thrifts.

Late Friday, the Federal Savings and Loan Insurance Corp. agreed to extend insurance to one of the 70 state-chartered thrifts and is reviewing other applications.

Two other failures have occurred at:

* Western Community MoneyCenter in Walnut Creek, Calif., a thrift and loan institution -- in effect, a finance company that took deposits. It was insured by Thrift Guaranty Corp., which had a pool of $25 million to cover 71 institutions. Depositors with $98 million in Walnut Creek thus far have received 22 cents for each dollar; the remainder will come after its assets are sold, and only if the sale price is enough to cover the liabilities.

A bill has been introduced into the California legislature to have the state pay off depositors in full and then be reimbursed by the asset sale in the future.

* Commonwealth Savings Co. of Lincoln, the largest industrial (savings) bank in Nebraska, which failed last November. The Nebraska Depository Institutions Guaranty Corp., with a $2 million fund, was not able to cover the $70 million in deposits. Customers may have to wait six years to get back a portion of their accounts, which were insured up to $30,000. Legal action has been started to determine whether the state should be held liable.

According to the National Council of Savings Institutions, the trend toward private insurance is growing. Donald R. Beason, president of North Carolina's Financial Institutions Assurance Corp., said that he has been contacted by representatives from 15 other states eager to set up their own systems. The trend has the encouragement of FSLIC officials who do not think federal insurance should cover deposits in state-chartered thrifts engaged in riskier investments than the law allows their federally chartered counterparts.

Alternative insurance systems originally were established so state-chartered institutions could escape the stricter rules required for FSLIC coverage. Some thrifts objected, for example, to federal community reinvestment requirements, while others wanted to pay higher interest rates when federal ceilings were still in effect.

State funds now are gaining momentum as more and more healthy savings institutions in the federal system object to paying higher premiums to cover sickly thrifts. The theory is that a state fund can keep closer tabs on its members than a fund run from Washington can.

North Carolina's FIAC, founded in 1967 and based in Raleigh, insures 70 thrifts, or one-quarter of those in a state where anything goes. A thrift can make any type of loan or investment that is approved by its board of directors. In fact, said Beason, FIAC will insure only conservative institutions that are not interested in fast growth. But that does not exclude nontraditional investments such as real estate development so long as FIAC's audit team finds that the institution is successful at them.

FIAC's balance sheet shows $50 million in government securities, $25 million in reinsurance and a $75 million line of credit from Wachovia National Bank. Its ratio of reserves to insured funds is 2.6 percent compared with 0.76 percent for FSLIC. Beason said that, in its 18-year history, the FIAC never has had a failure resulting in losses to depositors. In case of liquidation, depositors are paid first and in full from FAIC funds.

FIAC is the only private fund that sets premiums for depository institutions on a risk-related basis, just as insurance companies do for drivers. The chairmen of the FSLIC and the Federal Deposit Insurance Corp., which insures banks, have asked Congress to change the law to allow them to charge thrifts according to how risky their activities are. Critics claim that this would lead to a two-tier banking system of sound and less-sound institutions, and that customers would avoid the weaker ones.

The key to the success of FIAC -- which has spread into three other states -- is selecting whom its chooses to insure, Beason said. He was asked whether expansion nationwide of FIAC-type coverage would mean that the federal government would become the insurer of last resort. He admitted that might occur, but that it would not necessarily have to happen if FSLIC were to model itself on FIAC. He admitted that such a change would take a largely expanded budget for more and better trained personnel and for decentralization.

Another critical factor for state funds is membership on the board of independents, Beason added. Too often in the states other than his own, insurance fund directors are thrift executives "who tend to look out for their own" by not acting in time to shut down troubled thrifts or change bad management, he asserted.