Caja Madrid, Spain's second-biggest savings bank, and five smaller lenders began talks on a possible merger as banking combinations accelerate ahead of a government rescue-fund deadline.

The Madrid-based lender with assets of about €190bn is in talks with Caja Insular de Canarias, Caixa Laietana, Caja de Avila, Caja Segovia and Caja Rioja over a combination under a Bank of Spain-endorsed model in which they would merge some central functions. The merger would combine lenders with total assets of about €228bn, according to data from the Spanish savings-bank association CECA.

The news came as ratings agency Fitch downgraded Spain from AAA, sending US markets tumbling on fears of a renewal of the eurozone sovereign debt crisis.

Combinations among the foundation-based regional lenders known as 'cajas' are proceeding apace as a 30 June deadline to tap government rescue funds approaches and the country's property crash drives up loan defaults. The Bank of Spain took over CajaSur, an insolvent lender with about €19bn in assets, on 22 May and recently said it would speed up its schedule for provisioning bad loans.

"I think real progress has been made with the Bank of Spain showing clear institutional will and ability to apply pressure" on the cajas, Arturo de Frias, an analyst at Evolution Securities in London, said. "The famous 30 June deadline is fast approaching."

Caja de Ahorros del Mediterraneo and four other savings banks with €135bn in assets last week confirmed plans to merge. On Friday, La Caixa, Spain's biggest savings bank, said it was in talks with Caixa Girona of Catalonia. At least 23 of Spain's 45 savings banks have either agreed or are in talks to conclude mergers, a spokesman for CECA said last week. Rodrigo de Rato, the former head of the International Monetary Fund who is Caja Madrid's chairman, said he expected 20 cajas to emerge from the restructuring process.

Caja Madrid and the other lenders taking part in the merger didn't say whether they would need funds from the rescue fund, which can hold as much as €99bn to restructure banks through mergers or, if necessary, seizures.