Santander has admitted that some customers are withdrawing funds amid concerns that the Spanish banking crisis is set to spread.
On Thursday, Moody's, the credit rating agency, downgraded Santander’s credit rating and 15 other Spanish banks and with the loss in value of other Spanish banking stocks this week, Santander has moved to reassure its UK customers that there money is safe.
Spanish banks received more bad news on Friday when official figures were released showing bad debts had risen to their highest level for 18 years.
It is expected that independent auditors will be bought in to assess how much of the €600 billion of mortgage debt needs to be written down.
Santander’s UK banking operations are part of the Financial Services Compensation Scheme, so if the worst did happen and the bank went down all UK customers would get back the first £85,000 of their savings, though it may take some time.
Local councils, including Kent and Westminster have all removed short-tern deposits until they judge that the pressure on the Spanish banking system has eased.
It remains very unlikely that Santander in the UK will go bust as it is a separate company to Banco Santander. The Spanish bank cannot take money out of the UK without UK regulatory approval.
However, it is important to note that Santander runs a subsidiary model that in theory at least separates its Spanish banking operation from its UK one.
A spokesman from Santander said: Santander operates under a subsidiary model. This means that Santander UK plc is completely autonomous from its Spanish parent company; raising its own funding to lend to consumers and companies in the UK.
"This structure acts as a firewall to prevent problems within one part of the group spreading to other units in the event of financial difficulties. This means that money raised in the UK stays in the UK."
Investors and savers who have more than £85,000 with Santander have been quick to remove funds invested above this level.
Santander confirmed that it had seen what it described as a “small” increase in withdrawals from savers with more than £85,000 invested with the bank and that there had been an increase in enquiries into branches and call centres.
The spokesman went on to say: “Both Santander and Santander UK are strong businesses focused on retail banking with no exposure to toxic financial products.
"Santander’s UK business is strong and has a standalone credit rating which is one of the highest credit ratings of any UK bank. Santander UK plc is also fully regulated by Financial Services Authority and all its deposits are covered under Financial Services Compensation Scheme.”
Shares in Spain's banking sector rallied following treasury minister Inigo Fernandez de Mesa's announcement that "Spanish banks have plenty of liquidity."
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