The president of the Postal Savings Bank of China (PSBC), who has been taken into custody on suspicion of having committed economic crimes, is found to have been involved in illegal fund-raising activities as well.
The revelation is a fresh sign that lax supervision had made the lender vulnerable to irregularities.
Tao Liming (pictured) was suspected of misappropriating the bank's assets to invest in a loan-sharking business, according to two people with knowledge of the case.
He was tentatively charged with taking bribes and issuing illegal loans. Formal charges are likely to be brought later.
Last week, the Communist Party's anti-graft body placed Tao under shuanggui, a disciplinary system equivalent to house arrest for party members that is outside the legal system. His alleged wrongdoings represented a blot on the reputation of the banking regulator, which granted PSBC a banking licence in 2007 with ambitions of transforming it into a giant retail bank.
Before PSBC, an offshoot of the former State Postal Bureau, was commercialised in 2007, it was limited to taking deposits and was barred from making loans.
'Within the postal bureau, no one really understood banking businesses and regulations at that time and it was by all means a wrong decision,' a retired bureau official said. 'But everyone welcomed the commercialisation, believing the PSBC could make a lot of money later on.'