ANNAPOLIS, JULY 14 -- Washington Bancorp was denied entry into the Maryland banking market today by legislators who rejected regulatory changes that would have allowed the firm to buy a small Baltimore thrift that would be converted to a commercial bank.

Washington Bancorp, parent company of The National Bank of Washington, wanted to buy Center Savings and Loan, a $9 million state-insured thrift that is facing a 1989 deadline to obtain federal deposit insurance. State banking commissioner Margie Muller sought an emergency regulation that would have permitted the sale.

The General Assembly's Administrative, Executive, Legislative Review Committee turned down the request, citing an opinion from the state attorney general's office that said such a change would require approval of the legislature.

Out-of-state companies are permitted to buy Maryland commercial banks that have been in existence for at least three years. The proposed change in regulations would have allowed a bank's previous existence as a savings and loan to count toward the longevity requirement.

Those who favored the change, including Frederick C. Rummage, a former Prince George's County delegate who is now a lobbyist for Washington Bancorp, had argued that it offered the state a way to resolve one of the lingering problems of the near-collapse of Maryland's savings and loan industry in 1985.

The state continues to insure more than 40 thrifts too small to qualify for federal insurance. By 1989, those thrifts must either convert, find a way to get federal insurance or go out of business. The proposed regulatory change, proponents said, would encourage conversions of other small thrifts that could then be bought by out-of-state banks.

State Sen. Howard Denis (R-Montgomery), a member of the committee, said he was sympathetic to the aims of the regulatory change, but believed that the emergency nature of the proposal was "short-circuiting the legislative process."

Opponents, including the Maryland Bankers Association, saw the change as a crack in the door that would allow banking competitors a foothold in the state.

John B. Bowers, chief lobbyist for the association, said such a change would have been an invitation from Maryland "to every bank of with substantial assets in the Southeast region." It is in the state's interest to allow local banks to grow in a stable, competitive environment, he said.

"We'll have to go back to the drawing board," Rummage said. He said he will push for a bill in the legislature next year that would do the same thing the proposed emergency regulation would have done, but said he does not know whether Washington Bancorp will still be interested in purchasing Center Savings and Loan next year.