The savings and loan disaster, along with recent court and legislative decisions that make it easier for banks to sell insurance, are prompting accountants, scholars and regulators to further scrutinize the financial stability of banks.

The accounting techniques banks use are being examined because of their effect on an institution's stock price and its ability to attract future depositors.Insurers, who face new competition from banks, also are tacitly pushing for a new accounting system to expose banks' weaknesses.

Insurers use the same accounting system as banks, but are less fearful of change, they say, because they are not federally backed and therefore operate more prudently.

Banks currently record their assets at the price at which they were purchased. Critics claim this accounting method inaccurately reflects their true financial condition, because assets currently may be worth more or less than their purchase price.

Instead, these groups favor market value accounting, a bookkeeping method that requires assets to be recorded at their present worth.

"If you look at the thrift disaster, (savings and loan institutions) were more deeply in the red than their books showed," said Robert Litan, a scholar at the Brookings Institution and a leading advocate of market value accounting.

"The typical failed thrift had a negative book worth of 15 percent of assets . . . and the cleanup costs were double," he added.

Academicians aren't the only ones discussing this idea. The Financial Accounting Standards Board, a government body that makes accounting rules, is expected to release a statement this year supporting the notion of market value accounting, according to insiders.

L. William Seidman, chairman of the Federal Deposit Insurance Corp., is on record as saying that market value accounting is "desirable."

But he stresses that the concept is not fully developed and is not the answer to the problem of properly valuing assets at this time.

In testimony before the House Banking Committee this winter, Charles A. Bowsher, the U.S. comptroller general, said market value accounting may be necessary because lax regulations and low capital standards harmed the deposit insurance system.

Despite the trend toward market value accounting, the banking community has reservations about its effectiveness. That's because bank assets generally are managed with a long-term perspective, and short-term market swings do not give an accurate picture of the bank's financial worth.

"If it were implemented, it would yield a highly volatile presentation of a bank's condition," said Robert H. Dugger, chief economist for the American Bankers Association.

For example, he said, the value of assets will fluctuate with interest rate swings, and solid banks could look insolvent and weak banks might appear strong.

Mr. Dugger added that depositors and shareholders should not be concerned about new expansionary powers because tighter regulations resulting from the thrift crisis have enhanced bank solvency.

"We have new and tougher capital standards going into effect, and we are quickly expanding the number and professionalism of federal bank examiners," he said.

Linda Garvelink, director of regulatory affairs for the Independent Bankers Association of America, agrees that market value accounting is bad for banks. A bank's fundamental business is its loans, not deposits, she said.

Market values for deposits are easy to figure out, she said, but the current price of a loan is subjective.

Requiring banks to use market value accounting would result in fewer business loans and more investment in marketable assets, Ms. Garvelink said.

"Small and medium size businesses would have difficulty getting loans . . . (and) liquid asset banks would not be particularly profitable," the bank executive said.

In response to the argument that short-term market fluctuations do not affect the long-term agenda for banks, one accountant with a major firm points out that tomorrow's market values are reflected by today's prices.

"When the market prices an asset, it is bringing together a lot of information and long-term expectations for that asset," the accountant said.

"Therefore, building an argument against market value accounting, saying we should ignore short-term fluctuations because we are going to be in that asset for a long time, is tantamount to saying your crystal ball is better than mine."

Mr. Litan of Brookings agreed that market values can be difficult to determine for some loans, but he said that some estimate is better than none at all.

NEXT: Banks and depositors must rely less on the federal government if another thrift disaster is to be avoided, experts say.