In a statement SocGen, which is France's second biggest bank, says the "exceptional fraud" was perpetuated by one trader who was responsible for plain vanilla futures hedging European equity market indices and had taken "massive fraudulent directional positions" in 2007 and 2008 that were "beyond his limited authority".

The bank says the junior trader - who hasn't been named, but who earned less than EUR100,000 a year - had "in-depth knowledge" of risk control procedures from his previous position in the bank's middle office, which enabled him to "conceal these positions through a scheme of elaborate ficticious transactions".

SocGen says it no longer has exposure to the trader's positions, which were identified and analysed on 19 and 20 January 2008 and quickly closed, just before the markets around the world crashed on 21 January.

The trader has confessed to the fraud, says SocGen and has been suspended pending a dismissal procedure. His supervisors are also leaving the bank. SocGen Chairman and CEO Daniel Bouton also offered his resignation but it was rejected by the bank's board.

Meanwhile, the Bank of France has said it will launch an inquiry into the fraud.

The incident has thrown up inevitable comparisons with UK rogue trader Nick Leeson who caused the collapse of Barings Bank in 1995 by racking up $1.3bn in derivatives trading losses. However Leeson's losses are only around a quarter of the $7.16 billion lost by SocGen in this case.

The fraud losses - combined with EUR2.05 billion in losses and write-downs related to exposure to the credit crunch - has forced SocGen to seek EUR5.5 billion in emergency funding from a capital increase to bolster its balance sheet.

Update

According to a Financial Times report, the lone rogue trader that racked up the colossal losses at SocGen is Jérome Kerviel, 30, who joined the bank in 2000.

Kerviel worked in the bank's back office for three years before being promoted two years ago to SocGen's Delta One trading desk in Paris, says the report.