Federal financial regulators yesterday announced a $500 million rescue of First Pennsylvania Bank of Philadelphia, the third largest bailout in U.S. banking history.

In addition, other banks have agreed to furnish First Pennsylvania with a $1 billion line of credit to help keep the bank afloat.

First Pennsylvania is the largest bank in Philadelphia and the 23rd largest in the nation. Federal Deposit Insurance Corp. chairman Irvine H. Sprague said the bailout was essential to "providing general confidence in the banking system of our country." Sprague called First Pennsylvania an isolated incident and said, "we don't project additional significant problems." i

Federal officials said the only bailouts bigger than First Pennsylvania were Franklin National Bank in New York in 1974 and U.S. National Bank in San Diego in 1973.

The federal rescue-plan is unique in that it is dependent upon assistance from the private sector. The $500 million aid package consists of a $325 million five-year loan from the FDIC plus $175 million in five-year loans from 22 major U.S. banks. This is in addition to the $1 billion line of credit.

The FDIC refused to speculate what would have happened if these banks had not made the loans but stressed that letting First Pennsylvania go bankrupt was not considered.

Federal officials said merger was not possible because a large enough partner could not be found to take over First Pennsylvania which, with 40 branches, has 19 percent of the retail market in Philadelphia.

According to federal officials, First Pennsylvania's troubles date back to 1976 when it used short-term loans to make large purchases of long-term investments. When interest rates rose dramatically, First Pennsylvania was unable to pay the cost of keeping those securities and sale of the securities would have resulted in extraordinary losses.

When asked at a press conference how officials of one of the country's leading banks could do something so stupid, Comptroller of the Currency John G. Heimann responded, "It's remarkable, but sometimes they can."

George A. Butler, chairman of First Pennsylvania Corp., said yesterday in Philadelphia that "without these loans First Pennsylvania's financial visibility would have been seriously threatened."

Butler said the bank had launched a new strategy designed to "correct our mismatched assets and liabilities structure." Under the agreement, the bank is required to sell enough securities by the end of this year to realize a $75 million loss. This sale will free funds for investment at higher rates. a

Butler became chief executive officer of First Pennsylvania only last July replacing John Bunting.In addition to the "mismatched assets and liabilities structure," First Pennsylvania also made a large number of bad loans in the late 1960s and early 1970s under Bunting.

Heimann said First Pennsylvania's normal sources of money began to dry up when stories about its difficulties appeared in the press. First Pennsylvania recently borrowed $700 million from the Federal Reserve.

As rumors grew, First Pennsylvania's stock plunged on Wall Street from $15 a share last summer to less than $5 a share in March. As part of the federal settlement plan, stockholders' shares will be further diluted. First Pennsylvania will issue to the FDIC and the lending banks warrants to purchase 20 million common shares. The warrants will have an exercise price of $3 a share. Moreover, the bank may not, without consent of the FDIC and the other banks, pay dividends until the loans are repaid.

The FDIC also will be able to impose changes in the board of directors and the bank's operations if it deems them necessary. Under terms of the bailout agreement, creditors will have priority over banks who made loans to First Pennsylvania as part of yesterday's rescue package.