Abstract: The U.S. system of depository insurance is in crisis. Because of the large-scale insolvencies of hundreds of savings and loan associations (thrifts), the Federal Savings and Loan Insurance Corporation (FSLIC) has suffered a massive insolvency. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) calls for tens of billions of dollars of general Treasury revenues to cover these insolvencies; it also requires substantial contributions by the remaining healthy part of the thrift industry. Insurance premiums will be raised for commercial banks as well, to cover past and prospective losses in their insurance fund. Proposals for the reform of depository insurance are, consequently, coming to the fore. Risk-based insurance premiums, risk-based net worth (capital) requirements, tougher and earlier regulatory intervention, reduced economic powers, reduced insurance coverage, and “narrow” (risk-free) banks have been frequently mentioned. ’ Risk-based net worth standards are explicitly endorsed by the FIRREA. Less frequently mentioned, however, is a possible reform of the accounting framework used by depositories.2 This neglect is unfortunate, because a reformed accounting framework-one that tries to capture current market values rather than historical costs-could yield substantial improvements in the quality of private and public decisions. The argument of this paper can be summarized as follows: the purpose of an accounting system should be to provide a depository’s managers, owners, and insurer-regulator with a picture of current economic reality, so that private and public decisions concerning that depository have a proper