Federal officials have the authority to override state laws that limit the sale of failed thrifts to banks, a federal appeals court ruled yesterday.

The decision by the 8th U.S. Circuit Court of Appeals allows the Resolution Trust Corp. to sell an Arkansas thrift, Independence Federal Bank, and its 20 branches to an Arkansas bank, Worthen Banking Corp., which intends to convert the thrift offices to bank branch offices. The purchase would give Worthen branches beyond the borders of its home county, something otherwise prohibited by state law.

For the RTC, the agency established by Congress to oversee the savings and loan cleanup, the ruling enhances the marketability of some insolvent thrifts that have little value of their own, according to industry analysts.

Some state regulators see branching as a threat to the integrity of the local banking system, however, and small bankers see big chains as daunting competition.

"We are disappointed," said Kenneth Guenther of the Independent Bankers Association. Guenther said there are 17 states that do not permit full statewide branching by banks. He noted, however, that the immediate impact of the decision is limited, because the RTC is trying to sell thrifts with branch offices in only a few of those states. But with hundreds of thrifts expected to fail in coming months, more states could be affected.

The RTC has argued that it was given the power to override state banking laws under the 1989 federal Financial Institutions Reform, Recovery and Enforcement Act, which provided the framework for the disposition of failed thrifts.

Karen Shaw, a thrift industry analyst, said the appeals court decision is an important tool for the RTC, allowing the agency to offer "regulatory subsidies" when it cannot offer sufficient financial enticements in its efforts to sell failed savings and loan institutions.

"The RTC needs to find ways to improve the value of the thrifts they own, since most are in truly terrible condition," she said. The ruling by the three-judge 8th Circuit panel overturned a decision by a U.S. District Court judge in Little Rock, who sided with state regulators and independent bankers in blocking the sale to Worthen. A federal judge in New Mexico ruled in favor of the RTC in a similar case in June. That decision is currently on appeal.

Yesterday's decision could end up in the Supreme Court if conflicting rulings emerge from federal courts of appeal.

Both the New Mexico and Arkansas cases involve the expansion of intrastate banking, but the RTC has said that it has the same power to permit interstate banks to acquire branches by buying up failed thrifts and converting them.