Looking for ways to reduce the cost of the savings and loan cleanup, federal regulators are working on a plan to let some troubled thrift institutions stay in business even though they do not meet minimum financial safety standards, Federal Deposit Insurance Corp. Chairman L. William Seidman disclosed yesterday.

The rapid decline of real estate prices -- particularly on the East Coast -- is pushing more thrifts into trouble, Seidman told the Senate Banking Committee. Rather than shutting them all down, it may be cheaper to let some of them continue operating under close government supervision until the real estate market improves, he said.

Seidman, who also serves as head of the Resolution Trust Corp. (RTC), the agency in charge of the S&L cleanup, said the RTC and the Office of Thrift Supervision are preparing a proposal for the Treasury Department, which has the authority to make the decision.

"We told the Treasury we would explore any and all ideas that might be helpful in reducing the cost of this debacle," said Seidman, who has hinted at this suggestion in the past but has not discussed it publicly.

Allowing weak institutions to remain in business would represent a major change in the government's policy for cleaning up failed S&Ls, which now calls for shutting down troubled thrifts as quickly as possible.

It is a policy change that could be highly controversial. During the 1980s, hundreds of weak thrifts were allowed to continue in business, and this decision is frequently blamed for turning a relatively minor disaster into the most costly financial crisis in the nation's history. The cleanup currently is projected to cost the taxpayers $300 billion to $500 billion, including interest, over 10 years.

Immediately after the S&L cleanup law was signed by President Bush 13 months ago, the government began moving to seize money-losing thrifts and stop their losses as quickly as possible. Under that approach, about 350 S&Ls have been taken over by the RTC, but another 600 remain in precarious condition, unable to meet the minimum financial standards set by the 1989 law. Seidman said at least 100 could be eligible for the program.

The RTC has found it increasingly difficult to find new owners to take over failed thrifts and has had even more trouble getting rid of their billions of dollars worth of repossessed real estate and troubled real estate loans because of the rapid decline in real estate prices.

"What we are trying to do is find a way to handle those institutions that would be less costly to the taxpayers than putting them into the RTC," Seidman said. "The more we can avoid forcing more real estate into the public sector market at this time, the better off we would be."

Senate Banking Committee Chairman Donald W. Riegle (D-Mich.) said the government needs to find some way to keep the unexpected decline in the real estate market from adding additional billions to the thrift cleanup cost.

"The drop in real estate prices has added a whole new dimension to this problem. The severity of the losses is going beyond what anybody had imagined," said Riegle.

"We want to avoid flooding the market with property," agreed Sen. Christopher Bond (R-Mo.). But he warned that "this is a very difficult and tricky regulatory path to follow" because past delays have been costly.

During the early 1980s, the now-abolished Federal Home Loan Bank Board adopted a series of techniques known generally as "forbearance" to avoid closing failing S&Ls.

Those practices were so badly discredited that "we need a new word for forbearance," Seidman said yesterday, stressing that special consideration would be given only to thrifts that have strong prospects of surviving even though they cannot meet the capital standards.

Rather than repeat the mistakes of the bank board, any new program would be patterned on forbearance plans used successfully by the FDIC to help restore the health of farm banks and New England savings banks, Seidman said. Those plans provided for close government supervision of the banks while they rebuilt their financial base, he noted.

Allowing weak thrifts to remain open could erode provisions of the S&L cleanup law that toughened the capital requirements for thrifts, warned Reps. Charles Schumer (D-N.Y.) and James Leach (R-Iowa), two influential members of the House Banking Committee.

Any S&Ls that are given a break "should not only be profitable, {but} also have a positive net worth and they should not be allowed any growth," said Leach. He noted that many thrifts have tried to grow their way out of trouble, only to grow into bigger problems.

"I would be skeptical, but I wouldn't rule it out," said Schumer. "I'd be willing to give {marginal thrifts} some time to work it out, but past history has shown it is pretty difficult."