Dire conditions in some of the nation's worst thrifts were discovered and documented by field regulators in early 1988, but their superiors in Washington failed to act on the findings, while assuring Congress that the savings and loan problem could be contained.

Five Cincinnati officials, who were brought to Dallas to do a peer review of the Federal Home Loan Bank's regulatory operations, testified before a congressional panel yesterday that they were flabbergasted by the underreporting of huge losses by the thrifts. They said the problem was compounded by ranking bank board officials, who permitted the underreporting and who in some cases were regulating their own institutions.

The report, completed in April 1988, warned that Texas thrifts were losing $27 million a day, or nearly $10 billion a year. Around the same time, former Federal Home Loan Bank chairman M. Danny Wall was saying that the $10 billion to $15 billion federal deposit insurance fund would be sufficient to cover mounting thrift losses nationwide.

Wall was told promptly of the contents of the report, according to the former head of bank board regulatory affairs, Darrel Dochow, and former Federal Home Loan Bank board president George Barclay of Dallas, both of whom also testified yesterday. Wall could not be reached for comment.

A year later, President Bush asked for and got $50 billion to start paying thrift losses that now are expected to total at least $500 billion over the next decade. At the same time, Congress subsequently passed legislation that took regulatory responsibilities away from the nation's 12 bank boards.

Several members of the House Task Force on Urgent Fiscal Matters, which called the hearing, said they believe the review was mothballed by a Republican administration that was looking toward November 1988 presidential elections. They said that resulted in costly delays in shutting down dead and dying thrifts.

The staff of the House task force unearthed the peer review report from the files of the successor agency to the bank board, the Office of Thrift Supervision.

Task force members also accused Dochow of trying to pressure his subordinates into "low-balling" their estimates of the cost of the thrift cleanup during the same time period. Dochow said he merely told staffers that those who thought the thrift situation was "hopeless" probably wouldn't be much help in resolving it. He said he "has no recollection" of any of his former superiors telling him to keep the estimates low.

Dochow said he has been demoted to the level of a deputy director of the OTS Seattle office.

John F. Downey, deputy director of the OTS, told the committee that his agency is initiating investigations based on material contained in the peer reviews.

The peer reviews are considered highly confidential, and regulators who testified yesterday said they have been frustrated about having to stay silent about their findings.

"If these peer reviews were made public they could have saved the taxpayers billions," said task force Chairman Charles Schumer (D-N.Y.). "Didn't you wonder why your report didn't sound a call to arms in Washington?"

"We've been wondering that for the last two and a half years," said Gerald P. Summers, head of the peer review group.

"We knew when we did the peer review that we would one day appear before a committee of Congress," said regulator William M. Edwards.

"We found out the Dallas bank board was not reporting known losses. It obviously was wrong and they knew it was wrong," Summers said.

When Dallas bank officials were presented with the findings, he said, they offered excuses instead of facing facts. "They'd just shrug it off."

Barclay, newly installed as Dallas bank board president when the report was done, said he was "alarmed" by the findings, and took immediate action. "I fired Joe Selby and his three top aides," Barclay said. Up to now, Selby, then the top regulator in Dallas, has been widely thought of as a hero of sorts -- the one fairly tough regulator trying to crack the whip in a wildly permissive and corrupt climate.

"It was a real slap in the face" to read reports that Selby was fired for being too tough, said regulator Mark Reitzes. In fact, he said, the reverse was true. Selby could not be reached for comment yesterday.

Among the findings cited in the peer review:

One Texas thrift that was hurtling toward insolvency in 1988 -- Olney Savings Association -- was at the same time being promoted by top Dallas bank officials as a thrift that could acquire and manage others under the so-called Southwest Plan, the first phase of the cleanup.

Regulators testified they believe the Dallas board was trying to give preferential treatment to Olney's chairman, Allan Myers, who was a member of the Dallas bank board.

Lamar Savings, an insolvent $2 billion institution, was allowed to underreport known losses by $400 million. One of the thrift's directors was a director of the bank board.

San Antonio Savings Association, a $2.9 billion thrift, was given a high rating by the bank board although it was in very poor condition. Its president was a director of the federal home loan bank.

Costs to taxpayers on one institution, Guaranty Savings, doubled to $3 billion, because of delays in recognizing its losses.