The future of Spanish lender Banco Madrid is in the balance after it filed for bankruptcy following a deposit run sparked by a money-laundering investigation into its parent company.

Banco Madrid, a relatively small bank with 14,000 clients, kept the doors of its branches closed yesterday as it emerged the lender had ceased all financial operations and requested a creditors’ meeting. Its branches remained closed today.

In a statement pinned to the door of the lender’s main office in Madrid, the Bank of Spain said the closure had been caused by “the heavy deterioration of the financial situation of Banco Madrid as a consequence of the large withdrawals of funds by clients and due to recent events which have affected its ability to fulfil its obligations in a timely way”.

The crisis was sparked by an investigation, across the border, into Banca Privada de Andorra (BPA), which owns Banco Madrid. On March 10th, the US department of the treasury’s financial crimes enforcement network (FinCen) said BPA was “of primary money-laundering concern”, specifically pointing to “corrupt high-level managers and weak anti-money-laundering controls” which had helped Russian and Chinese clients, among others, with criminal activities.

Authorities in the Pyrenean principality of Andorra followed up on the allegations by arresting BPA chairman Joan Pau Miquel Prats on Friday.

In Spain, the central bank opened its own inquiry and sent inspectors into Banco Madrid premises, prompting the lender’s entire board to resign. The Bank of Spain now controls the lender.

Speculation about Banco Madrid saw its clients withdraw €40 million from the bank in the days leading up to its bankruptcy announcement, according to the stock market regulator, the CNMV.

BPA bought Banco Madrid from Kutxabank for €100 million in 2011. It has assets of about €1.2 billion and €600 million in deposits. Many of its clients are high earners.

Banco Madrid’s collapse comes three years after Spain suffered a major financial crisis which led to it requesting a €100 billion EU rescue for its banks in 2012. The government eventually used less than half of those funds and the banking sector has since been reformed and streamlined.

Today a Madrid court gave Spain’s FROB financial restructuring fund two weeks to decide whether to rescue Banco Madrid. But while the lender is a small presence on the Spanish market, there seems to be little appetite on the part of the government to bail it out.

Secretary of state for the economy Íñigo Fernández de la Mesa said that “public money won’t be used” to help the lender, which, he added, does not have liquidity or solvency problems. Economy minister Luis de Guindos played down the scale of the Banco Madrid crisis, insisting it is “a small, particular bank which does not imply any kind of systemic risk for the Spanish financial system”.

But while there was little sign Banco Madrid’s troubles would affect the sector as a whole, in Andorra at ATMs there were long queues of BPA clients making withdrawals from that bank, which have been capped at €2,500 per week. Andorra, whose population under 100,000, relies on financial services and the scandal could be a blow to the local economy.

The BPA-Banco Madrid case comes two months after the governments of Spain and Andorra agreed on measures to increase financial and fiscal transparency between the two nations.

Last year, it was revealed the former premier of Catalonia, Jordi Pujol, had avoided paying taxes on a fortune he had deposited in Andorra in 1980. In December, opera singer Montserrat Caballé agreed to pay the Spanish treasury €250,000 after avoiding taxes by claiming Andorran residency.