The arrest of Ly Xuan Hai for "deliberate wrongdoing causing serious consequences" came just hours after the Asia Commercial Bank announced he had resigned from the position of director general.
Mr Hai is the second person to be arrested, on monday the ACB's flamboyant founder Nguyen Duc Kien was detained for illegal business activities.
Since then the Bank's shares have dropped by nearly 20 percent and jittery depositors have withdrawn more than 200 million dollars of deposits.
The benchmark VN Index plunged 4.2 percent on Thursday led by bank shares, raising losses at the bourse to nearly 10 percent since the scandal broke.
The price of gold has surged as savers scramble for a safe haven.
The central bank had previously said Mr Kien's arrest is not related to the ACB, where he holds a less than five percent stake, but concerned accusations of wrongdoing at three smaller financial companies where he is chairman.
But Mr Hai's arrest brings a new dimension to a scandal that has already sent shockwaves through the communist country, said Vietnam expert Carl Thayer, emeritus professor at the University of New South Wales in Australia.
"It's a new ballgame," he said. "Clearly the private sector is coming under scrutiny."
Other experts warned that the growing scandal could spook already jittery foreign investors, particularly in Vietnam's already-fragile banking sector.
Mr Hai has been replaced by Do Minh Toan, previously ACB Deputy Chief Executive Officer.
At ACB branches in Hanoi on Thursday, customers queued to withdraw their savings forcing the central bank to send truckloads of cash to ensure liquidity.
According to official data, the central bank pumped more than $600 million into the banking system on Wednesday, double the sum of Tuesday's intervention.
Its governor Nguyen Van Binh has issued rare public assurances that depositors' funds are safe, pledging to "ensure liquidity for ACB and other banks if there is a mass withdrawal".
The communist country's Securities Commission urged the public not to panic and said retail investors should be "calm and prudent" in their securities transactions to avoid losses.