Lawmakers in the House and Senate are racing to restore a stop-gap measure that allowed regulators to sell failed banks to out-of-state bidders until the law expired on Monday.

Federal regulators said yesterday that expiration of the measure, known as the Garn-St Germain emergency acquisition act, has stripped them of important powers to cope with failed banks and savings and loans, including the ability to seek offers for failed institutions from a wide range of healthy, out-of-state buyers seeking to sell banking services across state lines.

The Garn-St Germain bill, passed in 1982, included interim, emergency legislation to give bank regulators greater power to deal with failed banks and S&Ls while Congress worked out a comprehensive banking law.

But an impasse between Senate Banking Committee Chairman Jake Garn (R-Utah) and House Banking Committee Chairman Fernand St Germain (D-R.I.) has stalled all major banking bills in Congress since. By default, the emergency portions of the Garn-St Germain measure have become an increasingly important tool to regulators facing a rising number of failed banks and S&Ls, many of them associated with falling oil and real estate prices.

Regulators say that in the absence of the federal law that expired at midnight Monday, their ability to sell failed banks to healthy bidders is severely curtailed. Without the measure, regulators must rely on state law for authority to make such sales, and local laws usually impose tighter restrictions on letting out-of-state buyers into their jurisdictions, regulators said.

Regulators said operating under state laws also is limiting because interstate laws vary from jurisdiction to jurisdiction.

For example, the Federal Deposit Insurance Corp., which insures deposits at banks, Monday sold The First National Bank and Trust Co. of Oklahoma City to First Interstate Bancorp of Los Angeles.

In contrast, newly enacted Oklahoma interstate banking law would have required the FDIC to sell the failed bank to any in-state bidder willing to match an out-of-state institution's offer, a process that might have added days or weeks to completion of the sale.

In addition, eligible out-of-state bank holding companies would be limited to those with headquarters in states that have reciprocal interstate banking agreements with Oklahoma, regulators said.

Because California has no interstate agreement with any state, First Interstate would have been barred from entering Oklahoma.

Regulators say that swift resolution of problem bank cases is critical to protecting depositor confidence and to minimizing government cost.

Also important in reducing the government's cost is getting as many healthy bidders as possible to make offers -- especially from institutions eager to take on a sick bank or S&L in exchange for the right to enter a new banking market.

Banking giants such as Pennsylvania's Mellon Bank Corp. and New York's Chase Manhattan Corp., for example, gained early entry into Maryland by taking sick S&Ls off the government's hands.

And Citicorp is fighting to gain entry into D.C. by buying a failing S&L, National Permanent Bank. Without the Garn-St Germain emergency bill, Citicorp's efforts to complete the deal could be stalled, regulators said.