The federal government yesterday sued President Bush's son Neil and 10 other directors or officers of the failed Silverado Banking Savings and Loan Association, alleging that they cost the government $200 million by inflating the thrift's balance sheets and approving highly speculative loans and investments.

The civil suit alleges that the directors of the Denver institution abandoned prudent lending practices first in pursuit of explosive growth, then in an attempt to conceal the thrift's deteriorating financial condition.

"Silverado was the victim of sophisticated schemes and abuses by insiders and of gross negligence by its directors and outside professionals," said Doug H. Jones, the FDIC's senior deputy general counsel.

The suit comes four days before Bush, a Denver oil man, is to appear at an administrative hearing on charges by the Office of Thrift Supervision (OTS) that he violated conflict of interest rules in how he handled Silverado transactions with his business partners.

The action by the Federal Deposit Insurance Corp. appears to guarantee that, whatever the outcome of next week's hearing into the OTS charges, the controversy over Bush's actions will continue for many months, providing a political weapon for Democrats.

The suit, which seeks $200 million in damages, is one of more than 200 filed against officers or directors of banks or thrifts by the government in an attempt to recoup some of the cost of the cleanup of financial institutions.

Neither Bush or his attorney, James E. Nesland, responded to phone calls yesterday, but Nesland has previously said a suit by the FDIC would be more worrisome than the charges by the OTS because of the possibility that Bush could be personally liable for monetary damages.

Silverado's directors are covered against lawsuits by an insurance policy, but the amount of coverage could not be determined yesterday. Bush has repeatedly said he "didn't do anything wrong" while serving as a director of Silverado from August 1985 to August 1988.

The government seized the institution six months after Bush left the board, and regulators now rank the S&L as one of the nation's 10 biggest thrift failures in both size and cost, estimated at about $1 billion. The suit details nine loans or investments as examples of a pattern of deals that the FDIC alleges bled the life out of Silverado.

The suit describes loans to borrowers who had defaulted on other Silverado loans, could not obtain loans elsewhere and put up none of their own money, even borrowing funds from Silverado to pay the loan fees and make interest payments. It also alleges that Silverado's directors, relying on grossly inflated and outdated appraisals, paid more for property than it was worth and lent more than they could ever recover.

The suit focuses heavily Silverado's transactions with Bush's former business partner, developer Bill L. Walters, alleging that "Silverado provided Walters with a ready source of cash for his ill-conceived, speculative projects" while the thrift assumed much of the risk.

Walters, in turn, helped out Silverado's officers by buying stock or bad loans from the thrift, according to the suit. That made Silverado appear more profitable than it actually was and kept it open longer, the suit says.

In one three-part transaction, for example, a Silverado subsidiary paid Walters far above the market value for two properties, ignoring information that one of them "was contaminated by an adjacent landfill," the suit claims. Walters then used part of the money to buy stock in Silverado's holding company. The holding company used some of the money from Walters's stock purchase to make $4 million in favorable loans to Michael R. Wise, Silverado's president, and W. James Metz, chairman of the board, the suit claims.

In another transaction, Silverado approved a $7 million loan, now in default, to a man seeking to buy buildings from Walters. The thrift obtained only a second lien on the buildings as collateral. Walters used $4 million of the money he received for the buildings to buy an interest in a pool of bad loans Silverado had formed, the suit alleges.

"Silverado suffered extensive losses on the entire series of transactions" with Walters, the suit claims.

Another developer, E. Trine Starnes, also fell into the category of a "favored borrower," the suit claims. According to the suit, Silverado's directors "were willing to make large sums available to Starnes even for speculative and poorly underwritten projects in exchange for assistance in temporarily removing bad loans from Silverado's books and concealing {Silverado's} deteriorating financial condition."

For example, the suit claims Silverado lent Starnes $30 million for a Florida orange juice factory, without obtaining a written appraisal and despite the fact that the factory had lost money for the last 18 months. In another transaction, the thrift lent Starnes the money to buy a hotel from a Silverado borrower who was defaulting on his loan, "replacing a nonperforming loan with a temporarily performing one."

Silverado's directors also approved a series of year-end transactions in 1986 that were principally designed to conceal bad assets and inflate the thrift's balance sheet, the suit claims. "These short-term 'gains' were achieved at devastating cost" to Silverado, the FDIC alleges.

In one transaction, Silverado lent $26 million to a company to buy an abandoned department store building in downtown Denver, using an appraisal that valued development rights at $14 million. A subsequent appraisal correctly took into account Denver's high vacancy rate downtown and valued the development rights at $320,000, the suit claims.

The suit singles out the outside directors for failing to oversee Silverado's operation, claiming they "deferred excessively to Silverado's management" and failed to correct practices despite heavy criticism from state and federal regulators. It also alleges that top officers received excessive compensation. Wise, according to the suit, was paid $1.3 million in salaries and bonuses in 1986.

The FDIC also sued Silverado's law firm as defendants, alleging that the lawyers structured many of the problem transactions.