A top international banking expert warned yesterday that the world banking system is "dangerously, indeed critically, overextended" and there is a serious risk of a "general seizure of the international banking system and a first order global financial crisis."

Richard S. Dale, an economist with the Brookings Institution, told a House subcommittee that banks already have slashed their lending to developing countries because they fear nations like Mexico, Brazil, Argentina and Poland will be unable to repay their debts.

"If alarm is allowed to spread unchecked through international financial markets, it is only a matter of time before the present bankers' crisis centering on the credit worthiness of country borrowers is compounded by a depositors' crisis centering on the credit worthiness of banks," said Dale. He testified before the oversight subcommittee of the House Committee on Energy and Commerce.

Dale said banks are still new to "large-scale cross-border lending" and the assumptions that countries will always pay their debts because it is in their interest to do so may be wrong. He said banks have been unable to judge accurately the risks of lending to various countries.

If banks, "for prudential reasons, began to withdraw from international lending" underdeveloped countries will be hard hit. Unless governments pick up the slack, the gap between the countries' needs and their ability to borrow will grow so large that it "can only be closed via a combination of sudden economic contraction in Third World countries and large-scale debt deferrals or defaults."

Already, he noted, several big debtor countries are talking about forming a united front to negotiate with their bank lenders.

The subcommittee is looking into charges that Citibank, the nation's largest, used phony transactions abroad to circumvent foreign laws on currency speculation and reserve requirements and to transfer profits from high-tax countries to low-tax havens.

Dale said the Citibank actions were the result of the widely differing levels of bank regulation and taxation among the world nation's and the "ease with which deals can be booked to any part of the globe." The actions for which Citibank has been criticized have contributed to the credit crisis in the world system.

Citicorp, the parent company of Citibank, has acknowledged that it engaged in some illegal foreign transactions during the 1970s. Bank officials maintain the violations were neither widespread nor Citibank policy. The company said the individuals responsible have been disciplined or fired and that the bank has paid about $11 million in back taxes and fines in Switzerland, West Germany and France.

The U.S. Comptroller of the Currency and the Securities and Exchange Commission investigated the charges against Citibank. The Comptroller criticized Citibank, but took no action. SEC investigators recommended the regulatory agency discipline the bank, but the commission declined to do so.

Both Dale and Karin Lissakers, of the Carnegie Endowment for International Peace, said Citibank was able to engage in these types of transactions because there is no adequate supervision of the international banking system.

"Whereas banks and funds move freely across national borders, bank regulators do not," Lissakers testified.

Banks tend to concentrate their high-risk activities in countries like the Bahamas which has loose banking regulation and low taxes, Dale said.