A former employee of Shanghai Pudong Development Bank is alleged to have acted as a loan shark and run illegal businesses to the tune of 6.4 billion yuan (HK$7.9 billion).
It is the latest scandal to reflect the severity of the mainland's shadow banking problem and banks' lax management of their branches. Ma Yijiang, formerly deputy head of a branch in Zhengzhou, Henan province, allegedly used the money from cash-rich depositors for loan sharking schemes.
The bank said in a statement it was assisting the authorities in their investigations.
Last month, the failure of a wealth management product (WMP) issued by Huaxia Bank's Jiading branch in Shanghai, which resulted in depositors losing several hundred million yuan, set off alarms in the country's banking sector, and analysts warned similar scandals would surface in the coming months.
A Zhengzhou court heard Ma's case earlier this week. The Shanghai bank said he resigned in October 2011.
The 21st Century Business Herald, an influential business newspaper, said Ma enticed depositors to hand their money to him by offering lofty interest rates between 2009 and 2011.
He lent the money, reported to to amount to 6.4 billion yuan, to other businesses, such as property developers, charging super-high interest, the newspaper said.
"It again proved a lack of proper supervision of banking outlets around the country," said an official with the Shanghai branch of the China Banking Regulatory Commission. "There are increasing risks that the defaults in the shadow banking system would lead to a credit crisis."
Ma allegedly told his victims the money was either used to boost the outlet's deposits or to buy WMPs - trust loans in which banks acted as middlemen to raise funds for borrowers.
Banks are required to register WMPs with the banking regulators, but some employees sold unlicensed products and took rich commissions from borrowers, industry insiders said.
Some branch chiefs and employees are exploiting clients' long-held trust in the banks to generate ill-gotten gains.
In the Huaxia scandal, Pu Tingting , a customer manager, was charged with illegally selling a product to raise funds for Zhongding Wealth Investment Centre without approval from headquarters.
Trust loans have grown rapidly in the past few years as investors, attracted by high yields, rushed to buy WMPs, assuming the investments were safe because the money went to banks.
Mainland banks have issued an aggregate 12 trillion yuan of WMPs. Bank of China chairman Xiao Gang described the products as Ponzi schemes.