Spanish lender Bankia is partly nationalised
Troubled Spanish lender Bankia is to be partly nationalised, the central bank has confirmed .
Bankia, which holds 32bn euros (£25.7bn) in distressed property assets and whose boss has resigned, will have a 4.47bn-euro loan by the Spanish bailout fund converted into shares.
The state fund will emerge with a stake in the bank of 45%.
Earlier, Spanish stocks fell by 3% and government bond yields rose above 6%, a level seen as unsustainable.
"The new management of Bankia will have to submit, as soon as possible, a fortified clean-up plan that will place it in a position to address its future with every guarantee of success," the Spanish central bank said.
Bankia has the industry's largest exposure to the property market, which burst spectacularly and has saddled its banks with bad debt.
Spain's fourth-biggest bank was only created in 2010 from a merger of seven struggling savings banks.
The BBC's business editor Robert Peston said: "The partial nationalisation will be a controversial operation, because it will lead to huge losses for many thousands of Spanish investors, who bought shares in Bankia and provided it with loan capital when it was listed on the stock market last year."
Many are worried about the level of bad debt that Spanish banks have, and fear that Spain will need a bailout.
The central bank added: "Bankia is a solvent institution that continues to operate on an absolutely normal footing. Its customers and depositors have no cause for concern."
The current Spanish government, elected in December, has so far insisted that no public money would be used to rescue banks.
But Prime Minister Mariano Rajoy conceded on Monday that "if it were necessary to prompt lending", he would do so "as a last resort".
On Monday, the executive chairman of Spain's Bankia resigned.