A rogue trader has cost French bank Société Générale €4.9bn (£3.7bn) in the biggest fraud in financial history.

News of the fraud, which will virtually wipe out 2007 profits at France's second-largest bank, sent shockwaves through European markets, already battered by the escalating credit crisis.

SocGen also revealed that it is being forced to make further write-downs of €2bn relating to the credit crisis and said it would have to raise €5.5bn in fresh capital to strengthen its balance sheet.

The bank gave few details about the trader, who has already been dubbed "the French Nick Leeson".

Leeson was the rogue trader who brought down Barings Bank in 1995, with losses of £800m. But the SocGen fraud is more than four times that figure.

By late afternoon SocGen had filed a formal complaint with the public prosecutor in Nanterre, on the outskirts of Paris, on three main charges: fraudulent falsification of banking records, use of such records and computer fraud.

The bank insisted that it had taken this measure to "contain the impact of the loss".

While the bank refused to name him, it is now known that he is 31-year-old Jerome Kerviel, who it worked in the bank's Delta One products team in Paris. SocGen's Delta One business includes programme trading, exchange traded funds (ETFs), swaps, index and quantitative trading.

Kerviel joined the bank in the summer of 2000.

SocGen, founded in 1864 and one of France's most prestigious companies, said the Paris-based trader had confessed to his actions, which involved "massive" fraudulent positions in 2007 and 2008, beyond his "limited authority". The trader has been responsible for "plain vanilla futures hedging on European equity market indices", the bank said.

It discovered the fraud last weekend and decided to close the positions as soon as possible. Their size, and the very unfavourable market conditions in which it was forced to unravel the trades, led to the €4.9bn hit.

"Aided by his in-depth knowledge of the control procedures resulting from his former employment in the middle-office, he managed to conceal these positions through a scheme of elaborate fictitious transactions," the bank said.

A "thorough analysis" of all positions in his department has been undertaken, which has confirmed the "isolated and exceptional nature of this fraud".

The trader has confessed to the fraud, SocGen said, and is in the process of being dismissed, as are his managers.

SocGen said chairman and chief executive Daniel Bouton had offered his resignation but this was rejected. The board reaffirmed its confidence in him and in the top management and said it has asked Bouton to "lead the group back on track for profitable growth".

Bouton said he and his deputy Philippe Citerne will both give up their salary until June 30 in the light of the losses.

Speaking at a hastily called press conference in Paris this morning, Bouton said the rogue trader was acting alone and does not appear to have gained personally from the unauthorised trading. He added: "I don't know the person and his motives are totally irrational."

SocGen executives refused to account for why the trader had been allowed to leave the building - and possibly flee the country - without yet being interviewed by police.

The French prime minister, François Fillon, speaking from the World Economic Forum in Davos, attempted to reassure markets, saying that while the SocGen situation was serious, it was not tied to the current turbulence.

The Bank of France has set up an inquiry and the French government was following the situation with "very, very great attention," Fillon told reporters.

"Société Générale has had to deal with a very major case of fraud. It is a serious case but at the same time it has nothing to do with the situation on the financial markets," he said.

"I note that (SocGen) has taken very significant measures to tackle this situation. I note that the Bank of France indicated that it wasn't worried about the solidity of this banking establishment. I am happy about that."Trading in the bank's shares was briefly suspended on the Paris market this morning. When dealing resumed, they fell just over 4% to €75.87, taking their loss since the start of the year to more than 20%.

News of the fraud and credit crunch write-downs sent shockwaves through the banking sector this morning. Rival French bank BNP Paribas rushed to reassure the market, saying it does not expect any exceptional losses in its 2007 accounts that would justify a profit warning.

"The process of closing the 2007 accounts of BNP Paribas is continuing in a satisfactory manner," it said in a statement. "It has not revealed any loss of item that would justify any particular warning to the market."

In an effort to allay fears over its figures, the bank said it would publish its preliminary results for 2007 next week.

Roger Steare, professor of organisational ethics at Cass Business School in London said the SocGen scandal was further evidence of a "systemic deficit in ethical values" in the banking industry.

He said: "This latest rogue trader scandal is yet more evidence that while rules-based regulation and controls work for kids in the playground, it won't stop adults doing the wrong thing.

"The banking industry used to have a reputation for honesty, trust and prudence. This latest scandal, on top of the massive losses in credit markets, and the ongoing incidence of mis-selling to retail customers, indicates that there is a systemic deficit in ethical values within the banking industry."

SocGen said chairman and chief executive Daniel Bouton had offered his resignation but this was rejected. The board reaffirmed its confidence in him and in the top management and said it has asked Bouton to "lead the group back on track for profitable growth".

Bouton said he and his deputy Philippe Citerne will both give up their salary until June 30 in the light of the losses.

Speaking at a hastily-called press conference in Paris this morning, Bouton said the rogue trader was acting alone and does not appear to have gained personally from the unauthorised trading. He added: "I don't know the person and his motives are totally irrational."

SocGen executives refused to account for why the trader had been allowed to leave the building - and possibly flee the country - without yet being interviewed by police.

The French prime minister, François Fillon, speaking from the World Economic Forum in Davos, attempted to reassure markets, saying that while the SocGen situation was serious, it was not tied to the current turbulence.

The Bank of France has set up an inquiry and the French government was following the situation with "very, very great attention," Fillon told reporters.

"Société Générale has had to deal with a very major case of fraud. It is a serious case but at the same time it has nothing to do with the situation on the financial markets," he said.

"I note that (SocGen) has taken very significant measures to tackle this situation. I note that the Bank of France indicated that it wasn't worried about the solidity of this banking establishment. I am happy about that," he added.

Trading in the bank's shares was briefly suspended on the Paris market this morning. When dealing resumed, they fell just over 4% to €75.87, taking their loss since the start of the year to more than 20%.

News of the fraud and credit crunch write-downs sent shockwaves through the banking sector this morning. Rival French bank BNP Paribas rushed to reassure the market, saying it does not expect any exceptional losses in its 2007 accounts that would justify a profit warning.

"The process of closing the 2007 accounts of BNP Paribas is continuing in a satisfactory manner," it said in a statement. "It has not revealed any loss of item that would justify any particular warning to the market."

In an effort to allay fears over its figures, the bank said it would publish its preliminary results for 2007 next week.

Roger Steare, professor of organisational ethics at Cass Business School in London said the SocGen scandal was further evidence of a "systemic deficit in ethical values" in the banking industry.

He said: "This latest rogue trader scandal is yet more evidence that while rules-based regulation and controls work for kids in the playground, it won't stop adults doing the wrong thing.

"The banking industry used to have a reputation for honesty, trust and prudence. This latest scandal, on top of the massive losses in credit markets, and the ongoing incidence of mis-selling to retail customers, indicates that there is a systemic deficit in ethical values within the banking industry."