The Bank of Butterfield had no written statement of the rules that guide its borrowing practices, a Supreme Court jury heard yesterday.

Clarendon (Hal) Masters, a senior credit officer in charge of the bank's domestic business, admitted this during cross examination from defence lawyer Julian Hall.

Mr. Hall is representing David Alexander Diggins, 49, of Somerset. On August 25, 1995 he was a senior manager responsible for all foreign and international loans at the Bank of Butterfield.

It is alleged that Diggins falsified the information contained in a loan document which he presented to Mr. Masters.

On the basis of the information in that document, Mr. Masters then signed the memo thus giving his approval to a loan for 1,875,000.

This money went to Neway Properties Ltd., a Gibraltar-based company and it was used to buy a piece of property in London.

Since then, 1.5 million of that money has been repaid after the Bank of Butterfield entered into a refinancing arrangement with the Bank of Austria and took a second mortgage for 375,000 which can only be realised if the Bank of Austria gives its approval.

The genesis of the bank's problem, Mr. Masters said, rested in Diggins' failure to follow procedure.

Mr. Masters said that the bank required such loans like these to go before the senior credit committee. If time does not allow, the lending officer was required to get three signatures from members of that senior credit committee.

Therefore, Diggins, he said, as the senior manager in charge of international loans, needed one more signature in addition to Mr. Masters' before the loan could be properly authorised.

Mr. Masters said that he had discussions with Diggins about the property called the Moulin Complex because he needed to satisfy himself that the buyers were putting some of their own money into the deal and that the repayment plan was a good one.

Based on what Diggins told him, Mr. Masters said he was satisfied that the bank's position was secure and he signed the document and assumed that Mr.

Diggins would go on to get the third signature.

Later he discovered that the bank had financed 100 percent of the deal because the real purchase price turned out to be 1,623,000 and not 1,875,000 as Diggins had initially said.

Moreover it turned out that the deposit, which was supposed to come from the buyer's own pocket, came from another company, linked to Neway called Tanson, which was already 15.3 million in debt to the Bank of Butterfield. The bank he said was trying to reduce the Tanson loans.

Mr. Masters said preliminary discussions on the Neway Properties loan were conducted in August 1995.

By the following March, the bank had launched an investigation into the entire episode and it was at that time that he discovered -- after an investigation of documents found in Diggins' office -- that the accused never got the third signature.

When Mr. Hall pressed Mr. Masters to show him a copy of the bank's rules regarding the requirement for three signatures if the loan proposal is not brought before the senior credit committee, he was unable to do so.

Mr. Masters admitted that he did not recall if those rules were ever written down but he said everyone in the credit department was aware of their duties.

However, Mr. Masters also admitted that the executive had the ability to waive these policies and make loans on behalf of the bank and then bring the matter before the senior credit committee after the money had already been sent for ratification "after the fact.'' Meanwhile, Diggins, whose trial entered its second week yesterday, had initially been charged with stealing $2,812,500 and obtaining the money under false pretences and with intent to defraud, inducing Mary Faries to deliver the money to Neway Property Ltd. without proper authorisation on August 29, 1995.

But those charges were dropped last Wednesday morning when Solicitor General Barrie Meade issued a Nolle Prosequi which meant that he was no longer prepared to proceed on either the stealing or the obtaining money by false pretences charges as they first appeared on the indictment.

Diggins now stands accused of fraudulent false accounting. It is alleged that on August 25, 1995 he falsified a report and its supporting documents.

Secondly, it is alleged that he obtained a valuable security by false pretences on August 28 and with intent to defraud caused Faries to send $2,812,500 ( 1,504,991.93) to the National Westminister Bank in London.