EUROPE : Banking Scandal in Hungary Shakes Public Confidence : Forty cases of corruption, representing $220 million, are being probed. But that may be just the tip of the iceberg.

Companies have bought banks to lend themselves money, and people in high places have doled out huge, unsecured sums to their friends.

Forty cases of corruption, favoritism, abuse of office and fraud now under investigation in Hungary have robbed national banks of at least $220 million and have spurred withdrawal sprees.

While the banking scandal disclosed in Hungary in recent days may be a drop in the bucket compared to the tens of billions of dollars missing from American savings and loans, it has shaken the confidence of some depositors and tainted Hungary’s image as the most reliable business venue in Eastern Europe.

There is also speculation in some financial circles that the cases made public this month are just the tip of an iceberg, as a lack of regulations for granting loans left the system open to an array of abuses that have only recently come to light.

Hungarian Finance Minister Ivan Szabo disclosed during a live radio interview in mid-September that the national police force was investigating indications of white-collar crime in the loss of more than 20 billion forints ($220 million) over the last 18 months.

A spokesman for the police force, however, said the losses mentioned by Szabo covered only those cases that have already been handed to the prosecutor’s office, and that hundreds of other loan defaults of suspicious origin were just being opened to investigation.

Banking officials have scurried to contain the damage by asserting that such corruption is a normal outgrowth of the region’s disorienting transition from a centrally planned to a capitalist economy. They have also appealed to bank managers to quickly disclose any more illegally authorized and overdue loans on their books.

“The growth of the black market economy is followed by the spread of corruption, which increases the risks the banking sector has to face,” the Hungarian Banking Federation said in a statement following Szabo’s announcement. “It is in the primary interest of the banks to reveal cases of this nature, and to establish and operate internal controlling systems that impede the occurrence of such crimes.”

Hungarian National Bank President Peter Akos Bod dismissed comparisons of his country’s banking scandal, which has deeply shaken the public, with the debt racked up by American S&Ls.;

The corruption cases uncovered so far in Hungary amount to less than $22 per capita. But average monthly income here is only $230, a fraction of that earned by American workers, and Bod conceded that further cases of fraud are likely to be found among the more than $2 billion worth of defaulted loans nationwide.

“This is not a macroeconomic headache,” insisted Bod, a former economics minister in Hungary’s center-right government.

Three banks that lent money to companies that owned them have declared bankruptcy in recent months and are awaiting liquidation, accounting for more than two-thirds of the bad loans blamed on corruption.

Some “restructuring of deposits” has occurred as account holders have moved their funds from banks implicated in the scandal, but Bod insisted that there were no signs of a nationwide run on deposits or a general decline in public confidence in the banks.

On the contrary, he said, the message being transmitted by the highly publicized investigations is: “Cheaters will be caught.”

“The fact that there are misdemeanors in the banking sector is well known, and the authorities will have to react” to news of corruption, Bod said. “In the long run this will strengthen business confidence rather than undermine it.”

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Williams, The Times’ Vienna bureau chief, was recently on assignment in Budapest.