Strapped S&Ls may soon get the chance to deal in the money markets

Time was, old-timers who can remember the 1970s might say, you always pretty much knew what a savings-and-loan institution was up to. People put their life savings in those little passbook accounts and thanked the S&L for its 5 1/2 percent interest.

In return, the S&L gave its customers the basic loans they needed to fulfull the American Dream: low-interest home mortgages, home-improvement loans, and car loans.

For both sides, the relationship was a happy and inexpensive one - that is, until high interest rates, competition from money market funds, and the rise of nonbanking financial services upset things.

In the future, with the help of declining interest rates and this month's assistance from Congress, the ol' S&L will never be the same.

Where once it seemed the S&Ls were on the brink of collapse or merger into their larger cousins in the banking community, they now seem on their way to a long - if somewhat different - existence, according to savings-and-loan executives and industry observers.

The bill passed by Congress in its final pre-election session earlier this month contained several provisions designed to help S&Ls through their current problems and, many hope, keep those problems from recurring.

One result is that S&Ls - as well as banks - can soon start competing with the money market funds. The bill instructed the Depository Institutions Deregulation Committee to come up with a depository instrument within 60 days that is competitive with the funds. How competitive it will be is in question, since the DIDC and other federal regulators had devised several certificates, including All-Savers, that were supposed to accomplish that purpose, yet the money funds continued to thrive.

A more profound change permits S&Ls to put as much as 10 percent of their assets into commercial loans by 1984. They will also be allowed to put up to 40 percent of assets in nonresidential mortgages and 30 percent in consumer loans.

While the ability to put 10 percent of its assets into lucrative commercial loans may not seem like much to an S&L overburdened with low-yielding home mortgages, it is a start that could lead to these institutions writing considerably more of these loans.

''Even though 10 percent is a small percentage of assets,'' commented Andrew S. Carron, a research associate at the Brookings Institution, ''there is a significant difference between zero percent and 10 percent. It's a lot easier in the political process to move from 10 percent to 15 or 20 percent than it is to get off zero.''

The ability to write commercial loans does not mean S&Ls are likely to move away from the housing business. On the contrary, a number of experts say, by making loans to timber mills, contractors, builders, electricians, and plumbers, S&Ls will be able to to assist more segments of the housing industry than real estate agents and homeowners.

One phenomenon that the recently passed bill is not expected to stop are the mergers of smaller, often troubled, savings and loans into larger and stronger institutions.

''I don't think mergers will stop completely,'' said Roy G. Green, chairman of the US League of Savings Associations and president of Fidelity Federal Savings and Loan in Jacksonville, Fla. ''But on the other hand, there will always be a place for the small community-based institution.''

The ''little guys'' that do survive independently, Mr. Green says, will be the ones that do the best job at providing competitive services. ''They'll have to do better than the big guy across the street,'' he said. ''This bill is not going to stop all S&Ls from failing.''

They may get some help, however, from the recent declines in interest rates. Thanks to lower interst rates, ''S&Ls will lose a slight amount of money or perhaps come out even next year,'' predicts Jonathan Gray, banking analyst with Sanford C. Bernstein Inc., a brokerage firm. ''And I see earnings of $2 billion or more in 1984.''

Those projections, he added, assumed no easing of the federal funds rate set by the Federal Reserve Board. If the rate is eased further, the $2 billion earnings projection could be larger, he said.