Millions of British bank customers faced anxious moments today with Santander becoming the latest giant to be hit by the euro zone crisis.
The High Street lender suffered a downgrade of its credit rating as worried consumers in Spain withdrew £1 billion - triggering fears of a run on the country's banks.
The move led to fears of a knock-on effect on credit, which could end up pushing up borrowing costs in the future.
The shock downgrade adds to fears of the crisis spreading from Greece and extending for the first time to British shores.
According to analysts, hundreds of UK institutions that have lent on the interbank market to Santander could be in deep trouble if the Spanish lender became a victim of the worsening single currency disaster.
Meanwhile, concerns are being voiced over Santander UK being possibly used to prop up its parent company, Banco Santander, though the Financial Services Authority (FSA) said it was 'unlikely' to allow this to happen.
A string of local authorities, including Kent County Council and Westminster, had already moved their deposits from Santander to safer accounts.
Many more retail savers holding large deposits could be expected to follow suit over the coming days as the bank could be exposed to billions of pounds in 'bad loans' to failed property ventures and other euro zone nations.
The spreading chaos could also take millions of people across the country with Santander mortgages, loans, credit cards and overdrafts in its sweep.
Meanwhile, customers seem to be thumbing down assurances that the UK subsidiary was not exposed to Spanish problems, with anxious savers taking to Twitter to announce they would be 'closing their accounts'.
The downgrading of 16 other banks in Spain has sent shivers through the economy.
Stock markets across Europe opened lower today with the FTSE 100 index falling 50 points at 5295 within a short time after opening and the German DAX down 50 points 6270.8.
Spain's Madrid IBEX was down 2 per cent before recovering.
Spain is now at the centre of a spreading crisis in the euro zone with its banks overexposed to toxic property loans and the government, fighting recession as also a 25 per cent jobless rate.
According to the Spanish central bank, the country's bad loans had hit their highest level since 1994 at €147.968 billion.
Prime minister David Cameron said today that if things went wrong in the euro zone, it would affect Britain.
Meanwhile, the government denied there was a run on deposits at Bankia SA (BKIA), the ailing lender it was taking over.
Analysts say the main drivers for Moody's action on Spanish banks today were rising loan defaults, a renewed recession, restricted funding access and lower ability of the government to support lenders, Bloomberg quoted one of the people familiar with the plans.
The cut in credit ratings for Spanish lenders would come on a tense day for the industry after a report in El Mundo newspaper that about €1 billion of deposits had been withdrawn from Bankia since the government announced plans to take it over on 9 May. Bankia's shares fell as much as 29 per cent.
Deputy economy minister Fernando Jimenez Latorre during a Madrid news conference on the country's gross domestic product data denied Bankia was suffering a flight of deposits.
In a filing to regulators today, Bankia, the lender with the biggest Spanish asset base, said that changes in deposit level in the first half of May ''have a substantially seasonal nature'' and that ''substantial changes'' in coming days were not expected.
Doubts about the health of Spain's banking system have contributed to driving up the country's borrowing costs on concern regarding its ability to cover losses caused by a real estate collapse that threatened to force some lenders to seek state aid. The yield on 10-year Spanish government debt was up 3 basis points to 6.3 per cent today with the spread over German bunds widening to 489.2 basis points from 482.2 basis points yesterday.
The government said on 11 May that it would require banks to set aside about €30 billion to cover potential losses on real estate loans that were still performing.
That would come in addition to €53.8 billion in charges and capital ordered in February. According to economy minister Luis de Guindos, the latest banking cleanup would mean the state would inject less than €15 billion in struggling banks.