16 September 2008 

MADRID -- The Spanish stock market plunged 4.5 percent Monday, recording its fourth-biggest single-day loss this year.

The share sale, inititiated by the bankruptcy of US investment bank Lehman Brothers and the sale of Wall Street rival Merrill Lynch to Bank of America, hit Spanish banking stocks particularly hard. Santander, Spain's biggest bank, dropped 6.88 percent, while rival BBVA dropped 6.80 percent, bringing the Iberia Index to a 26-month low.

Central banks rushed to add funds into the money markets, with the European Central Bank adding EUR 30 billion in immediate funding. Economists argued that the Lehman bankruptcy should only cause a slight tightening of credit conditions in Europe.

"The effects on credit [in Spain] will be slight because it barely affects Spanish lenders", said Juan Iranzo, the director of Madrid's Economic Studies Institute (IEE). However, he acknowledged that the troubles on Wall Street could cause a "domino effect" by weakening investors' confidence.

The Spanish Banking Association, an industry group, said European banks will not be directly affected by the Lehman Brothers bankruptcy, "and Spanish banks less so".

Regardless of the assurances, banking stocks declined across Europe. 

[El Pais / A. Eatwell / Expatica]