Customers with savings in troubled Banco de Madrid are only guaranteed €100,000 of their money back.
Spain’s industry-funded Deposit Guarantee Fund made the announcement late on Wednesday, saying that representatives would soon get in touch with clients to return their money “up to a maximum limit of €100,000 per account holder.”
The freeze on deposits affects around 14,000 clients who hold a combined €600 million in Banco de Madrid, as well as around 27,000 customers who placed €1.5 billion in investment funds.
This is the first time since the financial crisis began that Spain has applied the legal limit on deposit guarantees for insolvent lenders. The case sets a precedent in a country whose authorities had, until now, opted to bail out struggling lenders rather than let them fail.
The case sets a precedent in a country that until now had opted to bail out struggling lenders
Banco de Madrid ceased operating earlier this week, and an interim management team sent in by the central bank has requested a creditors’ meeting in a bid to prevent outright bankruptcy.
The lender, which manages large fortunes and had plans to expand, saw its fortunes change when US authorities acted against its parent company, Banca Privada d’Andorra (BPA), on suspicion of money-laundering activities.
In an offshoot of that investigation, the Bank of Spain sent two inspectors to BPA’s Spanish branch last week. But before the team had time to start analyzing Banco de Madrid’s accounts, the entire board of directors walked out, forcing the central bank to appoint a temporary management team and triggering a bank run.
One of the chief criticisms levied at the center-right government of the Popular Party (PP) has been its decision to bail out struggling savings banks with taxpayers’ money. In 2012, the Mariano Rajoy administration requested assistance from a EU bailout fund to save lenders that had been hard hit by the property bust.
This time, Spain’s Orderly Bank Restructuring Fund (FROB) said it would not step in to save Banco de Madrid, which now faces bankruptcy. A FROB statement said the lender did not meet “the legal requirements” for a rescue.