Some 40 tax inspectors and finance experts from the state prosecutor's offices in Frankfurt and Dusseldorf have been searching the bank's buildings in the two cities since 11 January.
They are investigating suspicions that the bank helped clients to switch undeclared funds to its Luxembourg subsidiary, so that they could avoid taxes on interest income.
A spokesman for the Dusseldorf state prosecutor's office said that the results of the searches so far had strengthened the suspicions of wrongdoing.
Dresdner Bank said that its transactions were in complete accord with German tax regulations and took place thousands of times every day.
Accusing the investigators of strong-arm tactics, the bank has indicated its intention of taking its complaint to the constitutional court in Karlsruhe. An initial protest to a lower court has already been rejected.
The bank said that employees had been threatened with arrest if they did not co-operate with the investigators and that all the mail from Luxembourg to Dresdner's main Dusseldorf office between 13 and 20 January had been unlawfully seized and searched by the authorities.
Frankfurt banking circles described the tough action against one of the country's top financial houses as a deliberate attempt to frighten German savers into keeping their funds at home.
In particular, the action was thought to be directed at shaking savers' trust in the confidentiality of German banking subsidiaries in Luxembourg.
The introduction by Germany of a 30 per cent withholding tax on interest income in January 1993 prompted a massive outflow of funds, especially to neighbouring Luxembourg, which has no such tax. German banking subsidiaries there saw an explosion in their business.
According to the latest Bundesbank monthly report, in the period between September 1992 and March 1993, some DM53bn ( pounds 20bn) worth of German savings flooded across into Luxembourg mark funds.
This financial exodus sparked off a diplomatic row between Bonn and Luxembourg, as the German government tried to persuade its neighbour to introduce a withholding tax.
Bankers believe that the German government's lack of success through diplomatic channels has now encouraged the authorities to adopt other methods.Reuse content