By Tim Gaynor

KABUL, Sept 14 (Reuters) - Afghanistan's central bank hasstepped in to take control of the troubled Kabulbank, itsgovernor said on Tuesday, after suspected irregularities threwthe country's top private financial institution into turmoil.

Here are some questions and answers about the bank, itstroubles and what it means for President Hamid Karzai and hisWestern backers.

WHAT IS KABULBANK?

Kabulbank began operations in 2004, almost three years afterU.S.-backed Afghan forces ousted the Taliban, and isAfghanistan's largest private bank in terms of business volume,number of branches, customer base and employees.

Financial records posted on its website (www.kabulbank.com)show it had total assets of $1.01 billion and liabilities of$991 million in 2009. It has 68 branches, most of them in thecapital, and plans to open 11 more elsewhere.

It also has links with international banks in Germany,China, Tajikistan, Saudi Arabia, India, Belgium, Italy and Iran,and is the principal agent for Western Union Money Transfer,handling remittances from Afghans living abroad.

The bank handles payrolls for the state, and its customersinclude about 300,000 soldiers, police officers and other stateemployees, whose salaries are funded by the United States andother Western donors. It also lends money to the private sector.

Kabulbank has close ties to Afghanistan's government andruling elite. One of Karzai's brothers is a major shareholder,as is a brother of First Vice President Mohammad Qasim Fahim.

Fahim's brother, Mohammad Haseen, is under investigation,along with former Chairman Sher Khan Farnood and former ChiefExecutive Officer Khalilullah Fruzi, Central Bank Governor AbdulQadir Fitrat told Reuters on Tuesday. Karzai's brother, MahmoudKarzai, is not.

HOW DID THE CRISIS UNFOLD?

Problems flared last month when Farnood and Fruzi, who eachown 28 percent of the bank, resigned.

U.S. media reported that the central bank had taken controlof Kabulbank, forced the two men out and ordered Farnood to handover $160 million worth of luxury villas in Dubai that may havebeen bought with Kabulbank funds.

The central bank, Karzai and Finance Minister Omar Zakhilwalall denied the reports and said the pair had resigned to complywith new financial regulations preventing shareholders fromholding senior bank management positions. Those regulations wereoutlined in a June statement by the central bank(www.centralbank.gov.af).

The central bank on Sept. 6 ordered Farnood and Fruzi'sassets frozen, as well as those of several other leadingshareholders and borrowers.

The crisis triggered jitters among customers, who staged arun on the bank despite assurances from the central bank andgovernment their money was safe.

On Sept 8, National Security Directorate officers beatpeople with batons outside one Kabul branch.

Then on Tuesday, Fitrat said that the central bank had takencontrol of Kabulbank "for the foreseeable future" because ofsuspected irregularities. The central bank is seeking help fromthe United Arab Emirates to freeze the assets of one of the twomain shareholders. Fitrat said the bank was still solvent.

HOW SERIOUS IS IT FOR KARZAI AND AFGHANISTAN?

The United Nations estimates that Afghans spend $2.5 billiona year -- a quarter of GDP -- on bribes. Washington fearscorruption is boosting the Taliban-led insurgency andcomplicating efforts to strengthen central government control soU.S. and other foreign troops can leave.

The crisis has flagged concerns about the handling of fundsfrom Western donor countries, channelled through a nascentcommercial banking sector that the United States has encouragedAfghanistan to build and which is tied closely to Karzai'sfamily and members of his inner circle.

A widespread perception among Afghans that Karzai'sgovernment is corrupt will be a major issue at Saturday'sparliamentary election, which the Taliban has vowed to disrupt.

(Additional reporting by Jonathon Burch; Writing by TimGaynor; Editing by Paul Tait and Charles Dick)