Because of the potential for conflict of interest, banks are required to tell the public how much money they lend their officers and major shareholders.

But banks are not required to tell the public anything about the money they lend to members of their boards of directors, the watchdogs appointed to make sure the banks are managed soundly as well as profitably.

Federal banking regulators said banks appoint real estate developers, corporate chiefs and other major borrowers to their boards in the hope of cementing their loyalty as bank customers. They said banks should not be required to tell the public about loans to directors because disclosure would discourage people from becoming directors.

The regulators said they consider it unlikely that board members would be compromised by loans they receive. Bank examiners study loans to directors in the course of routine loan reviews; they said the reviews are enough to keep directors honest and ensure that banks have treated directors the way they treat other borrowers.

"If being a director meant you couldn't borrow from the bank and every loan you did get was subject to public scrutiny, you'd think twice about becoming a bank director," said Ellen Stockdale, spokeswoman for the Office of the Comptroller of the Currency (OCC), which enforces the laws governing national banks. "We can't make it terribly onerous."

Stockdale's comments reflect the prevailing sentiment within the banking industry. However, a small number of critics, angered by the performance of directors and officers at failed savings and loans, said the rules should be changed to protect the nation's banks.

Some critics said the government should require banks to disclose more information about loans to directors. Others argue that the government should ban such loans altogether.

"Today, everything is based on exclusive reliance on the regulators operating behind closed doors," said Raymond B. Vickers, Florida's top bank and S&L regulator in the late 1970s and a student of banking history.

"What we're starting to realize now is that banks are public institutions that are backed by the U.S. government, and the public has a right to know," Vickers said.

Nasser Arshadi, a finance professor at the University of Missouri who has studied borrowing by directors and executives, said, "The S&L crisis has taught us a lesson. We cannot allow this practice to continue or we run the risk of repeating the whole debacle."

Congress's General Accounting Office has identified fraud and abuse by insiders as contributing causes of the savings and loan failures of the past decade. The government has held officers and directors accountable for S&L failures in about 2,000 lawsuits.

In many cases the government has accused directors of self-dealing. In others, the government has simply faulted directors for failing to properly oversee management.

"You shouldn't be able to borrow money from the financial institution you're supposed to be running," Vickers said. "How can a director effectively question management or set bank policy if they are a customer of the bank? It's impossible."

Gregg Jarrell, a former chief economist of the Securities and Exchange Commission who teaches finance at the University of Rochester's Simon Business School, said the potential for conflict of interest when directors become borrowers is "a real danger."

"The primary function of a director is to act as an expert advisor to management and a watchdog to protect the shareholders or depositors," Jarrell said. "It's just basic common sense that if you ... are a large borrower from the bank, it could compromise your dedication and ability to perform your primary job."

Industry observers said banks have been regulated more diligently than savings and loans so favoritism to bank directors is less likely to go undetected. The law requires that loans to directors be made "at arms length," without "special terms" and with the approval of a majority of the bank's board. Directors are not allowed to vote on their own loans.

Over the past three years, the OCC said, it has fined about 400 bank directors and officers for breaking those rules.

Officials within the agencies that oversee banks and the Securities and Exchange"The S&L crisis has taught us a lesson. We cannot allow this practice to continue or we run the risk of repeating the whole debacle." -- finance professor Nasser ArshadiCommission, which regulates publicly traded corporations, have discussed changing the rules to place new restrictions on loans to directors or require more disclosure. The discussions have not led to any formal proposals.

In the absence of requirements for public disclosure, banks have used their discretion differently.

Riggs National Bank, for example, said in a statement to shareholders that directors, executive officers and their businesses had Riggs loans of $255.8 million at the end of 1989 -- 6.7 percent of the bank's outstanding loans. Robert H. Smith, president of Charles E. Smith Construction Inc., led the list with loans totaling $58.1 million.

Because the bank is working with customers' deposits and shareholders' investments, "the public has a right to know the relationship between the directors and the institution," Riggs Chairman Joseph L. Allbritton said. There is no reason to prohibit loans to directors though, Allbritton said.

In contrast, MNC Financial Inc., the parent of American Security Bank and Maryland National Bank, disclosed nothing about loans to its directors.

"I have no intention to go beyond what the rules are. The rules are the rules," MNC Chairman Alfred Lerner said.

And unlike Allbritton, Lerner said he dislikes the practice of lending to directors. Lerner said bank officers may have difficulty treating directors impartially.

"It's a personal philosophy," he said. "I don't like {insider loans} and I've never had one ... but I wouldn't prohibit another director from getting one."