Spanish lender Banco Madrid said it was launching insolvency proceedings on Monday after clients rushed to withdraw their money when its Andorran mother company was hit by a money-laundering scandal.
Regulators in Andorra on March 10 took control of Banca Privada d'Andorra (BPA) after US authorities said they suspected it of letting international criminal groups launder money.
Spain's central bank then promptly took over the management of BPA's subsidiary Banco Madrid, a private investment manager, prompting customers to withdraw their cash.
Its provisional Bank of Spain administrators decided "to apply for insolvency proceedings this morning", Banco Madrid said in a statement.
The US Treasury's Financial Crimes Enforcement Network (FinCEN) classed BPA as "a foreign financial institution of primary money laundering concern" in a statement on March 10.
It said it had "information indicating that, for several years, high–level managers at BPA have knowingly facilitated transactions on behalf of third–party money launderers acting on behalf of transnational criminal organizations" in Russia and China.
Monday's insolvency decision "is motivated by the strong deterioration in Banco Madrid's economic and financial position in recent days since the decision by FinCEN," the bank said.
"The sizeable withdrawals of funds by customers as a result of these circumstances which the bank has had to deal with in recent days, have affected its ability to duly meet its obligations."
The Bank of Spain administrators decided applying to a judge for insolvency was "the only way to ensure equal treatment for deposit-holders and other creditors".
Banco Madrid said it would suspend its business operations until a judge rules on its insolvency proceedings.
Banco Madrid describe itself on its website as "one of the private banking institutions with one of the strongest balance sheets in the business in Spain".
Andorran authorities last week launched an investigation into BPA which the government said must be completed within two months.