Spain Banking Sector Shaken By Report Of Bank Run

DANIEL WOOLLS

MADRID (AP) ⿿ Confidence in Spain's banks and its teetering economy was shaken Thursday after a newspaper reported that depositors were rushing to withdraw their money from Bankia, a troubled bank that was effectively nationalized just one week ago.

Adding to the anxiety, rating agency Moody's downgraded its credit ratings on Spanish banks. The banking sector has been hit hard by a collapse in the Spain's property market and is facing tough funding rules that many analysts fear it can't afford.

The nervousness about Spain's banks comes as the eurozone financial crisis intensifies. Political turmoil in Greece has increased the likelihood that it could leave the 17-country monetary union, a move that could have ripple effects throughout Europe and the world's financial markets.

Depositors have been pulling their funds out of Greek banks. People fear the country's financial sector might collapse if Greece left the eurozone and that their savings would become worthless if the country started using a substantially devalued new currency, such as the drachma.

Bankia SA, the country's fourth-largest lender, saw its shares fall as much as 27 percent during trading in Madrid after the El Mundo newspaper reported the bank was hit with more than ⿬1 billion ($1.27 billion) of withdrawals since the government announced the takeover. The amount taken out by bank customers is equivalent to all withdrawals made from Bankia in the first three months of the year, the paper said.

Bankia insisted its depositors' money was safe, while the government denied there was a run on the bank. According to the company's latest earnings statement, total resident private sector deposits were ⿬125 billion as of the end of the first quarter. The bank is heavily exposed to the country's collapsed property market, with ⿬32 billion in problem loans.

Jose Ignacio Goirigolzarri, chairman and chief executive of Bankia, moved to reassure investors.

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