Madrid share prices plunged 2.55 percent Wednesday to the lowest close in more than three years as investors punished the overextended banking sector.
The IBEX-35 index of leading shares tumbled 179.10 points to 6,831.90, the lowest finish since March 2009. The decline brought cumulative losses so far this year to more than 20 percent.
The eurozone's biggest bank by capital, Santander, dropped 3.31 percent to 4.564 euros and its rival BBVA fell 3.33 percent to 4.936 euros while Bankia skidded 5.13 percent to 2.46 euros.
Spanish electrical network group Red Electrica dropped 2.23 percent to 32.155 euros after Bolivia's decision to expropriate its local arm Transportadora de Electricidad.
Spanish banks' problem real estate loans were worth 184 billion euros ($243 billion) at the end of 2011, equal to about 60 percent of the entire property portfolio, according to the Bank of Spain.
Central bank figures show that the ratio of bad loans -- those at least three months in arrears -- hit an 18-year high in February of 8.15 percent of total credit extended, the highest since 1994.
Most of the bad loans date to the banks overextending themselves during a property bubble that imploded in 2008.