Barclays has been ordered to pump £475m into its Spanish arm following a health check of the nation's financial system.

The Bank of Spain has run the rule over every lender in the country and found that Barclays (down 4.1p to 301.4p) is one of just two foreign banks without big enough cash cushions, along with Deutsche Bank.

The central bank is battling to quash fears that many lenders operating in Spain do not have enough capital to absorb potential losses on their loan books following a severe property crash.


Hard times: There is growing concern over the health of Spain's banking system


There is growing concern at European level over the health of the Spanish banking system, particularly the mutually-owned lenders, known as 'cajas'.

Moody's yesterday warned that the cost of safeguarding the Spanish banking system could be as much as eight times above Bank of Spain's £13bn estimate.

It cut the Spanish government's debt rating to two notches below its pristine triple-A level. Spain's largest bank, Santander, suffered a set-back to its plans to spin off its UK arm after its chief executive Alfredo Saenz was yesterday jailed for three months, banned from the banking industry and barred from working in financial services after he was found guilty of making false claims.

Santander is standing by Saenz, who will continuing running the financial giant while he appeals the verdict. however, the charges could complicate Santander's plans to list its fast-growing UK division on the London Stock exchange.

Saenz was due to take a place on the board of its British business ahead of one of the most eagerly anticipated floats in years. Following yesterday's ruling, it is unclear whether the City watchdog will allow him to take his seat.