MADRID—Banco de Madrid SA, the Spanish unit of an Andorran lender accused of money laundering, won’t be bailed out by Spain’s government and will likely be liquidated.

In a statement released late Wednesday, the government-controlled bailout fund FROB said it wouldn’t try to keep Banco de Madrid afloat. FROB has been in charge of several bailouts in recent years, including that of Bankia SA, one of the country’s largest banks.

The FROB didn’t say what would happen to the bank next, but without the fund’s support it will likely be liquidated.

In a separate statement, the country’s fund in charge of guaranteeing bank deposits said that, in accordance with Spanish law, Banco de Madrid clients will each have up to €100,000 of losses covered. Any claims above that figure will be resolved after the lender’s liquidation.

Banco de Madrid on Monday filed for bankruptcy protection after being hit by substantial client withdrawals.