The chief regulator of the nation's savings and loan industry, citing a threat to the insurance fund that backs their deposits, warned S&Ls yesterday not to try to expand too rapidly or his agency would rein them in.

Federal Home Loan Bank Board Chairman Edwin J. Gray, speaking at a convention of the U.S. League of Savings Institutions, criticized what he called the "go-go crowd, the daredevils, the high-fliers who dance on the high wire, those who by their actions and their exceedingly fast growth can only bring harm to the thrift system."

Instead of investing in housing, Gray said, "go-go thrifts" have been financing such risky ventures as windmill farms, fast food restaurants, airlines and oil drilling operations.

Gray's remarks reflected the concern federal regulators feel over the growing number of failures of financial institutions and the impact on the trust fund that insures their deposits. So far this year, 70 commercial banks and 20 savings and loans have failed.

The Federal Savings and Loan Insurance Corp. has just over $6 billion in its trust fund to insure $735 billion in deposits at S&Ls. But bank board officials warn that the insurance fund could decline by $1 billion this year, the first drop since it was established a half century ago.

Gray told the savings and loan executives that if present growth trends were to continue, nearly 300 S&Ls with more than $10 million in assets would double in size in the next two years. Another 475 would double in size in four years.

"What we face is a situation where deposit and asset growth in the industry are spiraling upward at a dizzying pace which, all too often, is unrelated to . . . net worth -- and which is not even faintly related to the level or magnitude of reserves on hand at the FSLIC," Gray said.

Net worth is the reserve cushion an institution maintains to absorb operating losses. In the second quarter of this year, one savings and loan in four was operating in the red.

The unusual activities of "go-go" thrifts result from permissive state laws and legislation passed last year by Congress to encourage thrifts burdened by low-interest-rate mortgages to diversify their holdings, Gray said. Nevertheless, he added, they are in "direct conflict with the legal and philosophical" tenets of the bank board.

Gray did not spell out what steps the bank board might take to curb a savings and loan it believes is growing too rapidly. He did mention, however, that savings and loans that engage in risky investments ought to pay a premium for their federal insurance of accounts.

Treasury Secretary Donald T. Regan told the same group Monday that an administration working group is devising a plan to reform the deposit insurance system because of the recent demands on the trust funds.

Federal Deposit Insurance Corp. Chairman William Isaac, whose agency insures bank deposits, has suggested that banks be required to increase their capital from 6 percent to 9 percent of assets to restrain the growth of weaker banks, which would find it harder to obtain the capital to expand.

Speaking bluntly, Gray told the S&L group, "This is a problem you must come to grips with honestly, forthrightly and expeditiously if you expect your separate system to be around for very long. . . . You would ignore [the issues] at your future peril."

Paul Prior, chairman of the U.S. League of Savings Institutions, said yesterday he supported the idea of a growth limit in general as a way of curbing S&Ls that don't build capital. But the industry would oppose any restrictions that seek to limit legitimate growth per se, he said.

The bank board has been floating the idea of a growth limit for some time, according to industry sources, but has not publicly proposed it until now. The notion is likely to be controversial, as was the board's attempt to curb brokered funds.

A year ago, at the same convention, Gray proposed to cut back the amount of deposits S&Ls could buy from money brokers. Gray attempted to limit brokered funds to the insured limit of $100,000 per broker per bank. But a federal judge ruled that the board had exceeded its statutory authority.