The Bank of Spain moved to calm financial markets on Monday, saying no Spanish financial institution had sought emergency financing from the European Central Bank (ECB).
Spanish bank shares were sharply lower after a British newspaper had reported that Adam Applegarth, chief executive of beleaguered British bank Northern Rock had said three Spanish banks had gone to the ECB for help last week.
"No Spanish institution has used any emergency financing facility," the central bank said in a statement, adding that Spanish institutions, in common with other European banks, continued to use the ECB's routine liquidity facilities. "This does not mean that they (Spanish institutions) are experiencing any difficulty."
Bank shares remained sharply lower, especially those that have less diversified businesses and could be affected by the rising cost of funding.
Bankinter was 5.8% lower by 0943 GMT, while Banco Popular lost 5.3%, Banesto 5.7% and Banco Sabadell 3.9%.
The biggest faller was Banco Pastor, which stood 10% lower at 10.59 euros, a new low for the year.
The Ibex-35 index was 1.8% weaker, and the DJ Stoxx European banks index dropped 2.7%.
In a report to clients published on Friday, Citigroup analysts said Spanish medium-sized banks no longer justified big forward premiums to the European banks sector.
It said the higher cost of bank funding had the potential to rapidly slow lending growth, trigger asset depreciation, significantly increase margin pressure, limit debt market liquidity, and accelerate the deterioration of the credit environment.
Citigroup now has a "sell" rating on Bankinter, Popular and Sabadell and cut Banesto to "hold" from "buy."
The uncertainty even affected Spain's international banking giants, with Santander down 2.5% and BBVA 2.4% lower.