Police on Friday said they had arrested the ex-chairman of Britain's Co-operative Bank in a probe over "drug supply", as the ethical lender finds itself dragged into a political row.
Former chairman Paul Flowers, a 63-year-old Methodist minister, was filmed talking about buying crystal meth, crack cocaine and ketamine by the Mail on Sunday tabloid newspaper in allegations published last weekend.
Flowers, also a former local councillor for the opposition Labour party, has since apologised -- leading to his subsequent suspension from the church and Labour.
A police statement released Friday said officers had on Thursday "arrested a 63-year-old man... in connection with an ongoing drug supply investigation".
Reverend Flowers was chairman of the Co-operative Bank -- which prides itself on ethical investments -- from 2010 until June earlier this year.
The lender and financial regulators are currently facing serious questions over his appointment, especially in light of the fact that the Co-op finds itself in a troubled financial state.
Conservative Prime Minister David Cameron on Thursday said that he would order a formal inquiry into the finances of the bank, which faces a big recapitalisation to cover bad loans and the costs of a failed expansion plan.
Flowers has meanwhile been engulfed in a highly damaging series of allegations over illegal drug use, sex with rent boys, drink-driving and questions over his expense claims while working for a drugs charity.
The allegations and the arrest of Flowers further damages the reputation of the Co-op just weeks after it unveiled a drastic restructuring that will hand control to US hedge funds in order to plug a £1.5-billion ($2.4-billion, 1.8-billion-euro) hole.
The revelations have sparked also the resignation of Len Wardle, who has stepped down as chairman of parent firm the Co-operative Group and who led the board that appointed Flowers three years ago.
The BBC on Friday reported that Flowers -- who was paid £132,000 a year -- resigned from the Co-op in June after being confronted by "lavish" expense claims, and growing doubts over his competence.
The Co-op Bank has meanwhile said that it is seeking to recover contractual payments made to Flowers, and he has been told to hand back £31,000.
The lender's disastrous financial situation was caused by its 2009 purchase of British mortgage lender Britannia -- which was saddled with bad loans -- and the collapse earlier this year of a deal to buy 632 branches run by Britain's state-rescued Lloyds Banking Group.
Cameron on Thursday asked questions about the crisis at the Co-op.
"Why was Rev Flowers judged suitable to be chairman of a bank? Why weren't alarm bells ringing earlier, particularly by those who knew?" Cameron said in a statement to parliament.
The premier also blasted Labour leader Ed Miliband over his centre-left party's close connections with the bank.
Miliband countered however that Labour had acted with "utmost integrity" and he accused Cameron of smear tactics.
The Labour party has also demanded that finance minister George Osborne explain why he had pressed Brussels to spare the Co-op Bank from tough new capital requirements, according to a report in the Financial Times.
The paper said Osborne had sought more lenient treatment amid hopes that the Co-op would buy the Lloyds branches and emerge as a strong challenger to Britain's "big four" established banks.
Last weekend, the Mail on Sunday published video footage of Flowers handing over £300 to allegedly obtain illegal drugs.
The paper added that the event had occurred just days after Flowers bungled an appearance before lawmakers on parliament's Treasury Select Committee, where he sought to explain the Co-op Bank's dire finances.
At his appearance on November 6, Flowers said that the bank's balance sheet had £3.0 billion of assets when the figure was actually £47 billion. He was also confused about loans and investments.