The Treasury Department has unveiled its latest weapon in the continuing fight to put a stop to illegal drug trafficking across the country: federal bank regulation.

While such a weapon is unorthodox, it represents a natural response to a growing phenomen cited by Treasury. Florida banks are literally swimming in cash much of which probably comes from people involved in huge illegal drug transactions in that area.

And in an effort to pinpoint the source of that cash overload, Treasury officials yesterday proposed tightening regulations governing all large currency transactions.

"Crime is a cash business," said Assistant Treasury Secretary Richard Davis in an interview. Criminals don't file W-2 forms.

Davis said that Treasury's findings seem to corroborate information from other federal agencies about illegal activities in Florida relating to narcotics, drugs and marijuana importations.

Treasury's check on banks revealed that in 1978, currency deposits in the Miami and Jacksonville Federal Reserve Bank offices exceeded payouts by more than $3.2 billion. That figure represented 77 percent of the surplus reported by all Federal Reserve Offices in 1978.

The study also showed that a great deal of that surplus came from Northern cities, particularly New York, Chicago and Detroit, which showed large decreases in cash during the year.

The figures clearly indicate that unusually large volume of currency are flowing into Florida from other states, and perhaps, from other countries, Treasury said in releasing its study.

One fact that has officials puzzled is the outpouring of $100 bills -- some $2.5 billion worth -- from New York's banks. By contrast, much of the growth in Florida's cash holdings is in $20 denominations.

"What that may indicate," Davis said "is hoarding. When someone is keeping money outside the banking system, it is usually kept in large bills."

Davis said one of the discoveries made because of the study was the fact that "there certainly is not anywhere near 100 percent compliance with the bank Secrecy Act."

Under that act, banks must report unusual currency transactions in excess of $10,000. But there is an existing regulation which allows banks to exempt certain regular customers.

Although that exemption was designed to ease transactions for major commercial customers who, for example, might make daily deposits from receipts, it appears that the exemptions may have been misused, Davis said.

There were, for example, individuals and other unlikely customers like small charter boat operations or small airplane charter companies, that were routinely being allowed to make huge cash deposits or withdrawal without the transaction being reported.

The new regulations being proposed by Treasury would require that such exemptions be sharply limited to those engaging in lawful retail businesses.

In addition, the regulations would require all banks to make more complete identification of a person dealing in large amounts of currency, and require such reports to be filed within 15 days after a transaction takes place.

The new regulations would also seek to prevent reporting exemptions to be extended from domestic banks to offshore banks, which the department thinks could be involved in funding illegal operations through large cash expenditures.

Treasury's new regulations will be published in the Federal Register today, and are open to public comment for 60 days.