The charitable fundraising arm of Manchester cancer hospital The Christie has been told it will not be able to recover the £6.5m it lost in the collapse of Icelandic bank Kaupthing Singer & Friedlander.
The charity, which had the money deposited in the bank when it went into administration last year, has been told by the Financial Services Compensation Scheme that it does not meet the criteria for a payout, which typically covers small firms and individuals.
The Christie provides specialist cancer care and carries out research into the disease. A parliamentary motion by a group of local MPs said the decision would cause the hospital to shelve plans for a joint £50m research project with the University of Manchester, although a spokeswoman for the hospital declined to confirm that claim.
She also said the hospital's current work was unaffected, but "future plans for research may be affected".
Caroline Shaw, chief executive of The Christie, said: "We are very disappointed that our application has been rejected. We must now move on to the next stage, which is a judicial review aimed at overturning the decision and getting our money returned".
A spokeswoman for the Financial Services Compensation Scheme said: "We must follow the rules set for us and our decision does not in any way reflect a judgement about the importance of the work the charity does."