French bank chief investigated

Mr Trichet was in charge of supervising state banks

Bank of France governor Jean-Claude Trichet is under investigation over the Credit Lyonnais scandal.

The bank tried to hide its huge losses and had to be bailed out by the French Government.

Mr Trichet was the Treasury official responsible for supervising state-owned banks at the time.

He is being formally investigated for "spreading false information to the markets and presenting and publishing inexact accounts".

Mr Trichet, who has been Bank of France governor since 1993, is earmarked to replace Wim Duisenberg as head of the European Central Bank in 2002.

'Total confidence'

He said he was profoundly surprised to learn of the investigation, as extensive inquiries had been made at the time.

"I have total confidence in the justice system of our country and will be completely available to the investigating magistrate to whom I will demonstrate the good faith of the Treasury management," said Mr Trichet.

The crisis led to Europe's biggest corporate bailout

Under French law, being placed under formal investigation does not necessarily mean charges will be laid.

Credit Lyonnais was a state-owned bank with ambitions to become a major world player.

It expanded into property and even the Hollywood film studio MGM.

But a series of bad business loans in the early 1990s left it with billions in debts.

After making heavy losses, it was eventually bailed out by the state, costing taxpayers more than $15bn.

Bank now profitable

Credit Lyonnais was privatised last year on the orders of the European Commission and is now profitable.

But the bailout was approved only on condition that the bank sold off most of its holdings.

The bank's former chairman and managing director are already under investigation on suspicion of falsifying balance sheets.

It is thought the inquiry into Mr Trichet's role will focus on the effectiveness of the government's financial surveillance system.

The overall investigation, headed by a Paris magistrate, was launched in late 1996 and could take several years to complete.