West Germany's banking authoritiesare being drawn into the currency scandal surrounding
Volkswagen AG &lt;VOWG.F> as the repercussions and allegations in
the financial community widen, banking sources said.
    The Bundesbank has seconded one of its currency experts to
help the state prosecutor investigating the currency fraud at
Volkswagen, VW, in Brunswick, a Bundesbank spokesman said.
    The Federal Banking Supervisory Office in West Berlin also
is considering press allegations that several banks "parked" open
positions with VW, breaching banking regulations.
    Earlier this month Volkswagen said it had incurred
potential losses of 480 mln marks in an alleged fraud involving
the hedging of open currency positions.
    The foreign exchange activities of a large non-bank
corporation would not normally attract the attention of West
German banking regulators.
    Their strict foreign exchange rules, set up after the
Herstatt banking crash in 1974, apply only to banks.
    "This strict banking supervision aims to protect special
interests -- creditors and depositors," the Bundesbank spokesman
said, adding company shareholders were not covered.
    "The Volkswagen case, in so far as it involves Volkswagen's
normal foreign exchange business, lies far outside the area of
the Bundesbank," he said.
    The Bundesbank's decision to send a currency expert to
Brunswick to help investigations into activities involving
Volkswagen's foreign exchange dealing room was part of the
normal assistance rendered by one public authority to another.
    The expert will count as part of the state prosecutor's
staff and not report back to the Bundesbank, he said.
    But the Bundesbank could get more closely involved in
allegations that banks used VW to circumvent regulations.
    Section 1a of the Banking Law requires banks at the close
of business each day to hold no more than 30 pct of their
capital and reserves in open positions.
    The section was introduced after the Herstatt bank crash in
1974 due to currency speculation.
    The Platow Brief financial newsletter said on Friday that
about 16 banks, mainly foreign, had been circumventing section
1a by "parking" such excess open positions with VW.
    This would mean that the bank concerned would sell the
position temporarily to VW, buying it back a day or so later.
    However, such repurchase agreements are expressly included
in section 1a as still counting as open positions.
    A spokesman for the Federal Banking Supervisory Office in
West Berlin said it was following the allegations but
investigations were difficult because the 16 banks had not been
named. He declined to say what steps were being taken.
    But banking sources said the Supervisory Office as an
initial step had approached the Platow Brief for the identity
of the banks, but this had been refused. The Platow Brief
declined comment.
    If the Supervisory Office ascertains that the banking
regulations have been infringed, it will pursue the case with
the assistance of the Bundesbank.
    The Office, subordinate to the Finance Ministry, does not
have branches outside Berlin.
    The independent Bundesbank however operates 203 branches in
West Germany, closely monitoring local banks.
    Banks deposit statistics, including currency position data,
once a month with the Bundesbank's regional administrations at
federal state level, the Landeszentralbanken (LZBs).
    Currency dealers said parking excess positions with
non-banking corporates was frequent practice.
    Such positions would often be sold for tomorrow/next
delivery, with a verbal agreement to buy it back the next day
at the same rate.
    A VW spokesman said it was company policy not to undertake
currency hedging but he confirmed that arbitrage was allowed.
    He declined to estimate the volume of currency arbitraging.
German press reports have put it at 80 billion marks a year.
    The spokesman declined to comment on how it would have been
possible to carry out a fraud involving currency hedging given
the company's policy not to conduct this kind of business.
    VW finance director Rolf Selowsky accepted responsibility
and resigned. VW has suspended six other officials and fired
its former foreign exchange chief, Burkhard "Bobby" Junger.
    Management board chief Carl Hahn told a ceremony today
marking VW's 50 millionth vehicle that personnel changes did
not mean any of those involved was guilty.
 REUTER
