Updated from 1:29 a.m. EST

U.K. bank

HSBC

(HBC)

has emerged as one the largest victims of Bernard Madoff's alleged fraud with potential exposure of about $1 billion to the investment manager's collapsed venture, the

Financial Times

reports.

People close to the situation said HSBC's exposure stemmed from loans it provided to institutional clients, mainly hedge funds of funds, that wanted to invest with Madoff, the newspaper reports.

HSBC on Sunday said it was "carefully reviewing" its position but expected its final exposure to Madoff's firm not to be "material," the

Financial Times

reports.

Royal Bank of Scotland

(RBS) - Get Report

said Monday it could lose 400 million pounds ($600 million) as a result of its exposure to hedge funds managed by Madoff.

RBS -- one of Britain's largest banks, which is now 58% owned by the British government -- said it would lose 400 million pounds if the assets of Madoff's funds turn out to be worth nothing.

Meanwhile, Spain's

Grupo Santander

(STD)

, said its clients had exposure of 2.33 euros ($3.1 billion) to Madoff's funds, according to the report, published Sunday on

the Wall Street Journal's

Web site.

France's BNP Paribas said it could lose as much as 350 million euros because of Madoff's alleged Ponzi scheme, the report said. The bank said it hadn't directly invested in any funds managed by Bernard Madoff Investment Services but was exposed to them because of its trading business and loans it made to hedge funds that invested with Madoff, according to the report.

Santander said more than 2 billion euros of its clients' exposure belongs to institutional investors and international clients of its private-banking unit, the report said. The other 320 million euros is from private-banking customers in Spain, the report added.

Madoff, 70, is a former vice chairman of the

Nasdaq

stock market. He was arrested Thursday for allegedly masterminding what could be the biggest investment fraud in history. The

Securities and Exchange Commission

characterized the alleged scheme as "stunning" and "epic" in proportion.

According to an SEC complaint, filed in federal court in Manhattan, Madoff allegedly informed two senior employees that the investment advisory business was a fraud and had been insolvent for years. According to the complaint, Madoff told these employees that he was "finished," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme."

This article was written by a staff member of TheStreet.com. AP contributed to this report.