The director of the Vatican bank Paolo Cipriani and his deputy Massimo Tulli have resigned following the latest developments in a broadening financial scandal.

Cipriani and Tulli handed in their resignations on Monday "in the best interest of the institute and the Holy See", the Vatican said in a statement.

Their resignations came three days after Monsignor Nunzio Scarano, a senior cleric with close connections to the bank, was arrested along with Giovanni Zito, a secret services agent, and Giovanni Carenzio, a financial broker, on suspicion of corruption and fraud.

They are accused of plotting to bring $26 million in cash to Italy from Switzerland for Scarano's rich shipping industry friends in the southern city of Salerno. The 61-year-old cleric is also under a separate investigation on suspicion of money laundering.

Bank probe

Pope Francis last week set up a commission of inquiry to get to grips with the Vatican bank's longstanding problems.

The bank gained notoriety in 1982 when Roberto Calvi, the head of Banco Ambrosiano, was found hanging from Blackfriar's Bridge, near the financial district in London.

Banco Ambrosiano collapsed following the disappearance of $1.3 billion in loans the bank had made to several dummy companies in Latin America. The Vatican had provided letters of credit for the loans.

The Italian banker used to have close connections to the Vatican bank. A court ruled he had been murdered but the crime has never been solved.

The Vatican said Ernst von Freyberg, the bank's president, would become interim director general of the bank, which manages assets of $9.3 billion and handles funds for Vatican departments, Catholic charities and congregations as well as priests and nuns living and working around the world.