Santander, the Spanish bank that owns Abbey, and BNP Paribas, France's largest lender, last night revealed huge exposures to an alleged fraud carried out by Bernard Madoff, the former chief of Nasdaq.

Santander, which also owns Alliance & Leicester and Bradford & Bingley, said in a statement last night that it had more than €2.33 billion (£2.08 billion) worth of exposure to the fund.

The bank said that Optimal, one of its funds, had invested the money on behalf of international investors and private banking clients. It added that it had a further €17 million exposed through another of its funds.

Mr Madoff has allegedly confessed to a $50 billion swindle that could be the biggest-ever fraud perpetrated by one person.

BNP Paribas, of France, said last night that it had an exposure of €350 million. Reichmuth, a private Swiss bank, said that it was facing a $325 million loss and it was reported that Benbassat & Cie, another Swiss private bank, had exposure of $935 million.

It also emerged late last night that HSBC, the banking giant, may have a potential exposure of about $1 billion from loans made to funds investing in Mr Madoff’s venture.

Royal Bank of Scotland is the latest UK financial institution exposed to the alleged fraud by Mr Madoff, 70, an influential Wall Street figure who has served as chairman of the Nasdaq stock market. A spokeswoman for RBS said yesterday that the bank had “some exposure” to Mr Madoff’s company, but declined to say how much it was affected.

Bramdean Asset Management, the fund run by Nicola Horlick, which has about 10 per cent of its Bramdean Alternatives portfolio invested with Mr Madoff, criticised US regulators. The allegations against Mr Madoff pointed “to a systemic failure of the regulatory and securities markets regime in the US”, the company said.

It added: “The Madoff business has been subject to due diligence by many of the most experienced professionals in the global markets, including our own advisers, RMF, who are part of MAN Group. Most of these investors, including ourselves, regarded the Madoff strategy as offering a safe but stable source of returns. Yet it seems that criminal activity has continued unfettered and undetected for years.”

Although regulatory filings show that Mr Madoff had only about 25 clients, the number who could lose money through funds that invested in Bernard L. Madoff Investment Securities could run into thousands.

Fairfield Greenwich Group, the hedge fund, said that it had $7.5 billion in investments linked to Madoff. Banque Benedict Hentsch Fairfield Partners, a private Swiss bank, has $47.5 million of clients’ money at risk.

Vincent Tchenguiz, the property magnate, who is one of Britain’s richest men, is understood to have invested £40 million with Bramdean. The Robert I. Lappin Charitable Foundation, an American charity that supports Jewish programmes, invested its entire $8 million endowment with Mr Madoff. The head of the charity has said she does not expect it to survive.

Other wealthy individuals affected include Norman Braman, former owner of the Philadelphia Eagles American football team, Fred Wilpon, owner of the New York Mets baseball team, and J. Ezra Merkin, the chairman of GMAC Financial Services.

Mr Madoff is said to have admitted to the fraud on Wednesday, telling employees that he was “finished”, that he had “absolutely nothing”, and that “it’s all just one big lie”.

He allegedly confessed that the investment arm of his firm was “basically a giant Ponzi scheme”, and that it had been insolvent for years.

A Ponzi scheme is a fraudulent investment operation that pays abnormally high returns to investors paid from money put into the scheme by subsequent investors.

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