Santander is to buy rival banking group Banco Popular for a symbolic €1 in a deal backed by European regulators.
Banco Popular, Spain´s sixth-largest lender, has been teetering on the brink of collapse, weighed down by €37bn of non-performing property loans.
Spanish giant Santander announced it would raise €7bn through a rights issue to plug holes in Banco Popular´s balance sheet.
The rescue is being pushed by the Brussels-based Single Resolution Board (SRB), a body that was founded just over two years ago to deal with faltering banks while avoiding state bailouts.
Santander´s offer for Popular was agreed shortly after the SRB asked interested parties to submit bids for the ailing lender.
The European Central Bank confirmed that liquidity at Popular had deteriorated in recent days, to the extent that the lender would have soon defaulted on its debt obligations.
In an echo of the queues at many banks´ doors witnessed during the financial crisis, Popular customers have been voting with their feet, and their wallets.