When government officials took over Franklin Savings Association this past February, they ousted the top managers and spent several months looking among the ranks of employees for replacements to lead the large troubled thrift in Kansas.

They took a close look at William D. Reagan Jr., who had received high marks for his work in handling special projects at Franklin. In checking his background, regulators found out that Reagan had been president and chief executive of a highflying North Carolina thrift that collapsed in 1986 under the weight of millions of dollars in bad real estate loans. They chose Reagan for the job of chief financial officer at Franklin anyway, and in June, he started work at an annual salary of $175,000.

The decision to give Reagan the job highlights the personnel problems the Resolution Trust Corp. (RTC) faces as it does its job of dismantling and selling off the assets of hundreds of failed savings and loans throughout the country. Congress and thrift regulators in Washington have insisted that they do not want those who caused the crisis in the S&L industry to benefit from the cleanup, but they also know that there are a limited number of people with the knowledge necessary to manage a thrift.

The RTC often must rely heavily on what remains of the work force of a thrift it takes over, since it is those people who are familiar with the institution's operations and holdings. That sometimes doesn't leave much to choose from: Often, RTC officials say, the best people leave when a thrift gets into trouble, and the top management is removed when a thrift is seized.

The RTC has certain requirements for some of the people it hires. The agency has spent months drafting stringent ethical standards for its own employees and the thousands of independent contractors it expects to hire to manage and sell the assets of failed S&Ls. Among them is a prohibition on hiring or doing business with anyone who has contributed in the past to thrift losses of more than $50,000.

Thousands of others involved in the thrift cleanup, however, are not covered by the standards, as demonstrated by the Franklin Savings case.

An estimated 40,000 employees of 243 thrifts now under RTC conservatorship -- most of them low-level personnel -- are not held to those standards since they are neither contractors nor employees of the government.

Conservatorship is the government's first phase of a thrift takeover. An RTC manager is brought in to oversee operations until the thrift is placed in receivership, at which time the agency shuts it down and sells off its assets. The RTC currently has 484 thrifts in conservatorship and receivership, and may inherit more than 1,000 all told in the next few years.

"We don't want people who were associated with the losses to come back and run institutions," Rep. Bruce Vento (D-Minn.), chairman of a congressional task force overseeing the RTC, said in a recent interview.

Vento said he is disturbed by the appointment of William Reagan to the Kansas S&L and said he believes it violates the spirit of what Congress intended.

RTC officials defended their actions and said they were familiar with Reagan's past employment record.

Reagan, in fact, was never accused of anything more than bad business judgment in his stewardship of the former North State Saving and Loan Association of Greenville, N.C. The institution's demise cost a private state insurance fund an estimated $28 million to $30 million. BarclaysAmerican Corp., which took over the remnants of North State to gain a banking foothold in the state, paid an estimated $40 million more when it took over the thrift.

Regulators brought no charges against Reagan, criminal or civil, for his role in directing the thrift.

"I was familiar with his background," said Michael Martinelli, director of the RTC's regional office in Kansas. "Mr. Reagan took responsibility for what happened at that institution. ... Subsequent employers were very high on him."

Jim Thompson, deputy RTC regional director, added: "There's obviously a difference between someone who willfully causes a loss and someone who criminally causes a loss.

"There's degrees and reasons for loss. ... If you show me someone who is batting a thousand, I'll show you someone who doesn't exist."

Reagan, too, defends his appointment, saying there are few people with experience in this field. "If they didn't hire people who had any experience with institutions that had losses, they wouldn't be getting very much expertise in the thrift industry," said Reagan.

But Diane Casey, a spokeswoman for the cabinet-level RTC Oversight Board, said officials there have a basic goal: People who created the problem should not be part of the solution. "There is a lot of concern about employing individuals known to have contributed to the failure of an S&L," she said.

Generally, said Casey, the RTC has been able to avoid problems by bringing in retired bank examiners and executives to manage thrifts under RTC control.

Steve Katsanos, a spokesman for the RTC, said it is not always so simple.

"You have a situation where the RTC walks into an ongoing financial institution -- it might be a very sophisticated operation," he said. "Unless there's a desire to create a very tremendous work force, you have to rely on the employees in the institution to continue operations."

In early August, Vento wrote to the RTC inquiring about Reagan's background after getting a complaint from a former North State stockholder who had seen a notice announcing Reagan's appointment. An RTC official informed Vento's office of Reagan's salary and of his previous employment with a brokerage firm in recent years, but made no mention of North State.

In the wake of federal thrift deregulation, North State, which started as a small-town, one-office thrift, mushroomed into a 17-branch operation with hundreds millions in assets. Reagan's expansion efforts included the acquisition of several other North Carolina thrifts, including one with a portfolio full of bad commercial loans.

"It was simply a case of bad judgment and misdirection," said George C. King, former administrator of the North Carolina Savings and Loan Division who said he had a hand in forcing Reagan to resign from North State as its losses became known.

"It just went too far, too fast. It just got away from him."

Records on file with the Securities and Exchange Commission show that upon his resignation in November 1984, Reagan was paid $349,862 in salary and bonuses by North State's board of directors. The same filing details North State's $27 million in operating losses, which were to more than double in ensuing months.

Reagan, 44, said that he resigned voluntarily from North State. "My purpose was to take the blame for whatever resulted," he said. "I committed no breach of fiduciary responsibility or malfeasance or misapplication."

Reagan worked for E.F. Hutton & Co. and its successor firm, Shearson Lehman Hutton Inc., before being hired by a Franklin subsidiary in 1988. He joined the Ottawa, Kan., thrift in January 1989 to work on special projects, according to John Scowcroft, an executive with Franklin's former management team.

Scowcroft said Franklin officials knew of Reagan's work at North State and said that he was not involved in financial decisions at Franklin in the past.

Franklin managers who were in charge at that time have since been engaged in a legal tug-of-war with the government over the thrift.

Last week, a federal judge ruled that the government's takeover of Franklin -- the nation's 21st-largest thrift -- was unjustified, and he ordered the RTC out of the institution immediately.

A federal appeals court has granted the government a stay while it appeals the judge's ruling.

The uncertainty over Franklin's future and the inquiries being made about his past have Reagan wondering about getting back into the thrift business, which he said he did last year with some trepidation.

"I didn't want to endure what I'm enduring right now," he said.

He may not find much sympathy. Reflecting on the political fallout from the S&L debacle that every congressman is sensing, Vento said: "We didn't feel that the people responsible for the losses should be passed out high executive jobs. It almost seems to me like there is ... a culture of {executives} that are being passed around, that is protected."