On Aug. 22, 1985, when Neil Bush, then the 30-year-old son of the vice president of the United States, joined the board of directors of the Silverado Banking, Savings and Loan Association, he assumed two responsibilities that ultimately would change his life and perhaps the nation's political landscape.

The responsibilities were not only to avoid a conflict of interest but also, more broadly, to act in every way possible to ensure the long-term health of the S&L.

When Denver-based Silverado collapsed two years ago at an estimated cost to taxpayers of $1 billion, it joined a growing list of failed thrifts that now runs into the hundreds. The magnitude of the savings and loan industry debacle is only now becoming a major national political issue and it is focusing attention not only on what happened at Silverado but on the role of thousands of well-heeled, well-connected people who, like Bush, served as directors of savings and loan institutions.

The actions of all Silverado's 11 directors, including Bush, are under investigation by the Federal Deposit Insurance Corp. to determine whether the board violated its duty to ensure the safe management of Silverado. An FDIC civil suit, if brought, could seek millions of dollars in damages from each director.

If the suit is filed, it is expected to focus not simply on alleged conflicts of interest by Bush and other directors of Silverado, but basic questions of whether they lived up to their responsibilities as directors of a financial institution. The suit would be separate from regulatory enforcement actions, which Bush already is facing.

With the Silverado case, a new set of central characters in the S&L story are brought into view -- not just S&L executives or their political allies, but the public directors charged with the somewhat imprecise but legally demanding "duty of loyalty" and "duty of care" to the institutions entrusted to their care.

Regulators have sued directors in the past. But before last summer, when Congress passed a comprehensive thrift cleanup and reform bill, the suits acted mostly to deter bad acts rather than to recover substantial sums of money for taxpayers. Before passage of the thrift legislation, regulators could expect to collect in civil suits a maximum of $1,000 a day for every violation committed by an official.

The new law changed all that. Now regulators can sue for up to $1 million per person per day per violation. Of the 1,300 thrifts that have failed in the past five years, regulators expect that by the time the mess is sorted through the government will have filed civil suits against directors in half of the cases, seeking to recover as much as possible of the $300 billion to $500 billion the S&L cleanup is expected to cost. It is rare when any director of a board is excluded from such suits.

Although the board of directors cannot run the day-to-day operations of an S&L, in theory a thrift's board, as at any company, holds the key to protecting the institution's well-being.

Along with auditors and regulators, a board is supposed to play front-line defense against fraud and mismanagement by employees of the thrift. The board usually is made up of about six to a dozen people, half of them top management and the rest, like Bush, outsiders who deal with the company only at board meetings.

But as the increase of lawsuits against directors in the 1980s attests, the practical reality of how directors are chosen and how they do their job is coming under increasing attack. Although they are supposed to be chosen on the basis of business acumen or representation of various community interests, the reality is that a director often is chosen because his or her name will bring prestige or new business to the firm.

"Boards frequently pick directors as a way to get business," said Rodgin Cohen, the banking expert at the New York law firm of Sullivan & Cromwell.

The gap between theory and reality may explain why the boards of corporations all too often fail to fulfill the duties that law and regulation demand of directors.

Loyalty for directors, in the words of Harvard University Law School Prof. Detlev Vagts, means "a duty not to pursue their self-interest or the interests of people they work with or are financially tied to."

The duty of care, thrift regulators say, is the obligation "to act with such care as an ordinarily prudent person in a like position would use under similar circumstances."

Traditionally, however, regulators, backed up by court decisions over the decades, have held that directors of banks and thrifts must adhere to an higher standard than directors of other companies.

It was a point that thrift regulators made forcefully in the formal enforcement charges against Bush that they presented Feb. 5, 1990. And it is a concept that likely will be heard again in the coming months as outside directors of failed thrifts find themselves facing potential charges questioning what they were doing while the institutions supposedly in their care were careening toward failure:

"In any corporation, the directors are ultimately responsible. ... Though the board may entrust the day-to-day operation of a corporation to management employees, the directors remain obliged to keep themselves informed as to the corporation's operations and condition, and to satisfy themselves that the corporation is being operated soundly.

"Recognizing that directors work with funds provided by shareholders and other investors, the law imposes on them fiduciary duties of loyalty, candor and care. Directors of depository institutions such as banks and thrifts are held to a particularly high standard, because they also hold in trust the public's savings, which in turn are insured by public funds."

And the standard becomes higher still when a director has financial ties to a transaction being considered by the board, banking lawyers say.

"You have to draw a distinction between those transactions in which {a director} had no personal involvement and those in which he had a involvement," said Cohen. But, he cautioned, "it is not a well-developed area of the law when a director has a personal interest in a transaction and therefore a higher standard to live by."

Regulators, however, think they know when a director has crossed the line when they see it, and they say Bush's role in Silverado's demise crosses the line.

According to documents in the enforcement case against Bush, regulators noted that Silverado's wild growth -- from $250 million in assets in mid-1983 to $2 billion by 1988 -- was "unsafe and unsound," characterized by bad lending policies, faulty appraisals on property, speculative investments in real estate, risky business-dealing among thrift officials and "excessive" pay for top executives. In fact, regulators concluded, the thrift's growth was driven largely "by the desire to have a larger base to absorb compensation" for management.

The practices that the government alleges were unsafe were uncovered by federal regulators in 1986, when thrift supervisors undertook a lengthy examination of Silverado, according to the documents. Because of the questions raised, regulators began an investigation in 1987 of Silverado's practices. The inquiry continues to this day.

The examiners, according to the documents, questioned the wisdom of a decision to grant a $900,000 letter of credit to one of Bush's business partners, Kenneth Good.

Eventually, regulators found that Bush did not exercise his "duty of loyalty" because he did not fully disclose the extent of his relationship with Good to fellow directors. And even though Bush did not vote on the request, the mere fact that he asked the board to consider the loan violated conflict-of-interest rules, regulators argue.

Regulators also have expressed grave concerns about Bill Walters, another business partner of Bush's who also was a borrower and major shareholder of Silverado. Walters and Good have defaulted on more than $130 million in loans from Silverado, according to regulators.

Bush on several occasions has strongly denied any wrongdoing in connection with Silverado.

There are various levels of action that could be taken against Bush and other directors of Silverado and, similarly, against directors in other potential S&L cases.

Recently, Bush has been charged by thrift regulators of violating conflict-of-interest rules regarding the loans to Good and Walters. The government has asked Bush to agree not to break banking rules again. Bush, insisting he did nothing wrong as a Silverado director, has refused and is fighting the charges within the administrative proceeding of the Office of Thrift Supervision (OTS).

But Bush could face far more serious charges from the FDIC, which oversees the funds that insure deposits at thrifts and banks.

In addition to conflict-of-interest violations, FDIC investigators are believed to be examining Bush's role in more general management decisions that allowed the thrift to engage in bad business practices that, in the end, ran the thrift into insolvency.

Such a suit would likely center on the "duty of loyalty" standard that, until the costs of the S&L and banking collapses began to escalate, seemed little more than grist for a dry law school lecture.

Bush, for example, was on Silverado's compensation committee, which was supposed to set appropriate salaries for top management. According to the documents assembled by the OTS, regulators have found that the salaries and bonuses -- which for Silverado's chairman and chief executive, Michael Wise, alone was more than $1 million a year -- could not be justified given the precarious nature of Silverado's balance sheet.

Bush also served on the thrift's audit committee, which was responsible for ensuring that the operating policies of the company were sound. The 1986 examiners found they were not, saying among other things that the thrift "does not have comprehensive commercial real estate lending policies and frequently grants exceptions to those guidelines that have been reduced to writing." The examiners also said the accounting treatment of a large group of loans "significantly distorted the presentation of credit risk, problem assets, income" and other key measures of financial health in periodic reports to regulators.

After regulators presented their concerns to management in early 1987, through one agreement after another over the next two years, they demanded and thrift officials ostensibly agreed to change practices at Silverado. But, regulators said, Silverado never really implemented the promised changes.

Failure to heed regulators' warnings constitutes what regulators call gross negligence and provides the most common basis for the FDIC's civil suits against directors, according to banking lawyers.

In the aftermath of Silverado's failure on Dec. 9, 1988, this is the avenue banking lawyers suspect the FDIC will pursue to try to reduce taxpayer losses as much as possible.

The "gross negligence" standard was put in place as part of the multibillion-dollar thrift bailout package Congress passed last summer. The new law reversed a trend in the 1980s, when 40 states passed laws making it harder to sue directors. The law overrides state statutes and sets a minimum federal standard for when a director can be sued. Regulators believe it likely will make it easier for them to recover money from directors they believe did not perform their duties.

In the case of Silverado, regulators believe the board acted mostly to "rubber stamp" management's requests rather than oversee and question those decisions. Especially troubling was the apparent willingness of Silverado to buy and hold bad real estate from shareholders such as Walters, Bush's business partner.

If the directors of Silverado are sued, banking lawyers in Washington anticipate that the likely defense will be twofold. First, they will point out that many of the business practices regulators now object to were engaged in with the knowledge, and sometimes even the approval and encouragement, of regulators.

And second, they likely will challenge regulators' ability to apply a federal standard of civil negligence retroactively to events that occurred before the thrift bill was signed into law by President Bush last August.