Maryland State Sen. James C. Simpson (D-Charles) may have come up with the ultimate solution to regulating the savings and loan industry in the state.

Simpson is convinced -- after staking out a seemingly ambivalent position on the need for reform of the industry -- that the state should get out of the savings and loan business. He is, in fact, drafting a bill that would do just that. Simpson's bill would require all Maryland savings and loan associations to obtain a federal charter by 1992, or go out of business.

Some might say that Simpson's solution is nothing less than "overkill," the very term he used to describe a sweeping legislative proposal that would reform Maryland's state-chartered S&L industry through stringent regulatory measures.

A special Maryland Senate committee is studying the reform proposal and soon will hold hearings on the measure, which is based on a draft by the special investigator of the state's savings and loan crisis.

"The administration bill is an overkill," Simpson contended the other day, repeating a charge he first made during a meeting of the special Senate committee. "What [the administration's bill] will do is force all the state-chartered savings and loans into the federal system. No one would have a reason to remain a state-chartered savings and loan."

Even though Simpson says he favors reform, he nevertheless agrees with those who maintain that the reforms advocated by state officials are excessive. "We're going to make them stricter than the federal [regulations]," Simpson complained. "All you're going to do is force the [state-chartered S&Ls] into the federal system, and then you've got this [state] system to regulate just a few" Maryland-chartered S&Ls. The most practical thing is to put the federal requirements in the state regulatory system."

In a state where widespread abuses in state-chartered S&Ls nearly toppled the industry twice in just over 20 years, pleas for less stringent regulations seem rather inconsistent with the record of greed, theft and incompetence that has permeated much of the industry.

What if tough reforms are enacted into law, forcing state-chartered S&Ls to seek federal charters? The state would suffer no significant monetary loss. S&Ls won't be driven out of business. Simpson concedes both points.

What then, is the sticking point? Why is the reform measure so "draconian," as one state official described it?

"I think everybody has to be on the same level playing field," said Simpson.

Reserve requirements for some S&Ls would be too high, for example, if they were forced to obtain a federal charter, Simpson contends. What's more, said the senator, who sits on the board of Commercial Credit Savings and Loan, "a lot of directors" will resign if tough S&L reforms become law.

Considering the evidence of insider trading, excessive fees and other abuses that some directors either ignored or failed to detect at several Maryland S&Ls, that might be as good a place as any to initiate reforms.

"No matter how tough we make this law, you are not going to stop people from doing what some did," Simpson rationalized.

Interestingly, while Simpson worries that state-chartered S&Ls will be driven into the arms of the Federal Home Loan Bank Board, which regulates all federally chartered thrifts, his bill would produce the same result.

Under a system of federal regulation of all Maryland S&Ls, however, small community-oriented associations would be penalized, just as they would be under a state law that requires all Maryland-insured thrifts to obtain federal deposit insurance by a certain date.

In order to convert to federally chartered thrifts, small S&Ls in Maryland would have to meet more rigid standards set by the bank board as well as qualify for federal deposit insurance.

Certainly, the state would be better off if it got out of the business of regulating and insuring S&Ls. Most Maryland S&Ls would have to change their investment policies and undergo stricter audits and examination, but they aren't likely to be forced out of business by operating under federal charters.

The losers, under any scenario, would be the small, largely ethnic and neighborhood, thrifts. They have, in fact, been penalized most by the debacle caused by the industry's high flyers.

Ironically, small neighborhood-oriented S&Ls always have been among the safest and most prudently run thrifts in Maryland. It seems only right that some special arrangement be made to regulate and insure deposits at those institutions, which, after all, are something less and perhaps more than your run-of-the-mill S&L.

Neither Simpson nor the Hughes administration has made allowances for such an exception.

From Simpson's perspective, "It's time for the state to say, 'My God, after three of these [financial crises], let's get the hell out of the savings and loan business.' "