The General Accounting Office, the investigative arm of Congress, said yesterday that the failure of National Bank of Washington cost the government's bank deposit insurance fund far more than was necessary because regulators waited too long to close the financially deteriorating institution.

The Federal Deposit Insurance Corp. has estimated that it will have to pay at least $500 million to bail out NBW, making it among the 10 costliest bank rescues ever. The money, drawn from the FDIC insurance fund, was needed to cover the gap between NBW's assets and liabilities, when the institution was sold to Riggs National Bank last month.

A GAO official said that regulators' delay in confronting NBW's decline this year was "outrageous."

In testimony before the House Banking Committee, which is studying the nation's deposit insurance system, GAO Assistant Director Richard L. Fogel said the $500 million cost of closing NBW "indicates that {federal regulators} did not act soon enough to ensure that the costs to the insurance fund were minimized."

The health of the insurance fund has become a top political priority in recent weeks because of warnings from the GAO and the Congressional Budget Office that the fund has been so weakened by bank failures that one big bankruptcy or a spate of smaller ones could deplete it, leaving taxpayers liable for the costs of any further bank failures.

Fogel said yesterday that the Office of the Comptroller of the Currency (OCC), which oversees national banks, must do a better job of protecting the fund. He urged the OCC to use its regulatory powers more often to restrict troubled banks from excessive lending and payment of dividends -- actions that drain badly needed cash.

The OCC did limit the expansion of NBW in the months before its closure on Aug. 10, but it did not prohibit the bank from paying stockholders a dividend on April 9 of 7 cents per share, or a total of about $500,000.

Lenora Cross, spokeswoman for the OCC, defended the agency's actions, saying regulators acted appropriately and swiftly.

"Up until a few weeks before the bank was closed there was management in the bank that was working on what looked to be a reasonable plan for recapitalization," Cross said. "If that plan had worked out, it wouldn't have cost the FDIC a nickel."

The recapitalization involved a search for new investors to replenish the bank's financial foundation, but mounting problems with NBW's real estate loans doomed the effort.

Although Fogel criticized regulators for their handling of bank failures in general, NBW was the only institution mentioned specifically by name.

GAO officials said they reviewed NBW's situation and singled it out because it was one of the first banks in the nation to be taken over by the government while it was still solvent -- a new power given to the OCC last year that is intended to reduce the cost of bank rescues.

But in the case of NBW that process didn't work, the GAO said.

"The case of NBW was outrageous," said Craig Simmons, director of financial institutions and market issues for the GAO.

"It is mind-boggling to me that they closed an institution with so-called 'early intervention' and still wind up with losses that equal a third of the value of the institution."

The FDIC has taken on more than 50 percent of NBW's assets because Riggs, which purchased some of NBW's operations for $33 million, refused to assume those assets as part of its deal.

The FDIC has said that the final cost of the NBW rescue will depend largely on how much money the FDIC can generate from the sale of assets left in the government's hands.

Even in the costliest rescue to date, that of First Republic Bancorp of Dallas -- which cost the fund $3 billion -- the government assumed only 10 percent of the bank's assets.