Government regulators and financial executives said yesterday they fear more small government securities firms will fail as investors begin to demand delivery of collateral they had previously left on deposit with the firms.

The recent failures of two government securities dealers -- E.S.M. Government Securities Inc. of Fort Lauderdale, Fla. and Bevill, Bresler & Schulman Asset Management Corp. of Livingston, N.J. -- caused hundreds of millions of dollars of losses, mainly at municipalities and savings and loan associations.

Both companies allegedly used government securities they were holding for customers for their own purposes, the Securities and Exchange Commissiion has charged.

The lawyer representing the trustee for BB&S Asset Management Corp. -- which was closed last Monday -- told The Associated Press yesterday that the firm's collapse was precipitated by BB&S customers demanding securities that the firm didn't have.

Nathan Ravin, lawyer for trustee Saul S. Cohen, said customers began contacting Asset Management Corp. and seeking possession of their collateral after the failure of E.S.M., which triggered losses of more than $300 million after it failed March 4.

"Any other government securities firms that fail will have had to have engaged in practices similar to" the ones the SEC alleges E.S.M. and Bevill, Bresler engaged in, said the chief financial officer of a major regional bank. But in a business that is so easy to enter -- and in which a money-losing firm can keep going as long as investors are willing to lend it money -- there are bound to be other cases of fraud, the banker said.

Unlike brokers that deal with the public, government securities firms do not have to register with the Securities and Exchange Commission or any other government agency. That makes it difficult for regulators to find out who they are let alone verify their soundness, said one government official. "We just don't know where to look for them," he said.

The 36 biggest and most influential dealers report daily to the Federal Reserve Bank of New York. Another 35 to 40 file voluntary and cursory monthly reports to the New York Fed, but those reports are of little regulatory value. Both E.S.M. and BB&S reported monthly.

Government and financial officials say there probably are several hundred dealers around the country. "That's a guess," said a banker. "No one really knows."

Regulators and officials said most of the government securities firms are honest and have the securities they claim to be holding on their clients' behalf. But the officials said they fear there are bound to be other government securities dealers that have hidden losses by selling securities they supposedly were holding for customers.

Ravin said losses at Bevill, Bresler could be higher than the $198 million the SEC estimated earlier this week.

Securities dealers and their clients often engage in investment transactions using government securities as collateral, called repurchase agreements and reverse repurchase agreements. The transactions are referred to as repurchases but for most purposes amount to a secured loan.

In a repurchase agreement, an investor in need of a loan sells securities, which are held as collateral, and promises to buy them back -- in other words repay the loan -- at some future date. In a reverse repurchase agreement, an investor loans cash by temporarily buying the securities to hold as collateral.

About $200 billion in government securities are traded back and forth every day, many of them in repurchase agreements. Dealers usually do both types of transactions.

Lenders of cash make their money like all other lenders, from the interest they charge the borrower. The borrower often makes money too -- by paying the lender a lower interest rate for the cash than interest being paid on the underlying security. A banker, who enters into repurchase agreements as one method of raising funds for the bank, said the going rate on a loan is about 8.5 percent, while the securities he gives as collateral often earn 11 1/2 percent. "That three percentage points is my margin of profit," he said.

Investors doing business with E.S.M. and Bevill, Bresler left their collateral on deposit with the firms rather than demanding the securities be delivered to them. They were left holding the bag when the companies collapsed and the collateral was not there.

Even some firms that thought their transactions were fully protected by collateral may lose money. Savings and loan associations that borrowed from these dealers often sent collateral that was worth more than the amount of the loan. When the dealers collapsed, the savings and loans were out the difference between the loan they received from the dealer and the value of the collateral they provided.

The Federal Home Loan Bank Board, which regulates S&Ls, ruled in 1981 that overcollateralization -- providing securities that are worth more than 105 percent of the loan -- is an unsafe and unsound practice. A bank board spokesman said the agency is looking into reports that some savings and loans provided collateral worth far more than that.