Investors gave European banks the benefit of the doubt on Monday over stress tests that prompted more transparency from Spanish banks needing to raise capital than from German banks cagey about sovereign debt.
Spain's smaller regional lenders, or cajas, will start a roadshow in London on Monday aimed at reassuring investors after the test results on Friday showed five of their peers among the seven banks that failed, and several more close to failing.
Problems among the cajas have long been flagged, however, and are being remedied, and Europe's banking index rose 0.4 percent in a flat wider stock market by 6:15 a.m. ET.
The euro was little changed in the absence of any real shocks in the test of whether 91 banks in 20 countries could withstand another recession in the next two years.
Critics said the test was too soft -- shown by the banks that failed needing just 3.5 billion euros ($4.5 billion).
However, most people are going to be absolutely fine, said Ian Henderson, who runs a global financials fund for JP Morgan. We've already recapitalized most of the European banks anyway with huge amounts of money. Let's get on with life.
With so few banks failing, attention was on 17 who only scraped a pass, some of whom may opt to raise cash if the test fails to reduce their funding costs or soothe worries about risks, analysts said.
Those that are at the margin may as well raise equity to dampen down fears ... The sums of money involved are really relatively small, Henderson said.
German banks, including Deutsche Bank, were criticised for not providing as much information as rivals about their exposure to sovereign debt in the euro zone -- the major worry that prompted the tests. Shares in Deutsche Bank, which also owns just under 30 percent of Postbank, were down 1.4 percent, the weakest of the top names.
You have to take these tests with a pinch of salt, said Jonathan Cavenagh, currency strategist at Westpac, Sydney. Sovereign debt problems remain, funding constraints for their banks are still there and these have the potential to weigh on the euro.
Sources familiar with the discussions said Germany fought hard behind closed doors to limit the extent of disclosure.
Even so, investors now have more detail on banks' holdings of sovereign debt than they had before.
The euro was changing hands around $1.2908, near to its level in New York on Friday. Fears of a euro zone debt crisis had driven it below $1.19 last month, its lowest since 2006. But it began a swift recovery in July and hit a 10-week high above $1.30 last week.
If the minimum for banks to pass the test had been set at a Tier 1 capital ratio of 8 percent, rather than 6 percent, an extra 27 billion euros ($35 billion) of capital would have been needed, analysts at Morgan Stanley estimated.
About 40 percent of that would have been needed from German and Italian banks, it said.
Some of those banks are already making strides to raise capital, including Italy's Banca Monte dei Paschi di Siena and Banco Popolare, so they are unlikely to need more government aid. Deutsche Postbank, Germany's largest retail bank by clients, said it will continue with a plan to rebuild capital, included halting dividends.
The subdued response to the tests in Europe was a far cry from early May when global markets feared Greece's debt crisis might spread like wildfire through Europe and beyond.
Stronger-than-expected economic data suggesting the euro zone will avoid a double-dip recession, despite fiscal austerity measures, have also helped revive investor confidence in Europe.
The details from the tests should enable investors critical of the official results to run their own risk simulations to gauge a counterparty's solidity.
That should help reopen the interbank lending market, which partially froze at the height of the euro zone debt crisis and has remained tight on fears banks have been hiding exposures.
Credit markets showed a small improvement in banks' funding costs, but the real test will come when second and third tier banks try to move away from dependency on central bank funding.
Both bank bonds and credit default swap indices had already improved before the results and the Markit iTraxx European senior financials index tightened by 2.5 basis point to 128.5 on Monday, after starting the month at 164 basis points.
Europe is aiming to repeat the boost given to U.S. banks early last year from a health check on that sector, although the European test has been conducted much later in the cycle.
European banks have already raised about 300 billion euros since the start of the crisis -- including 34 banks taking 170 billion euros from governments -- whereas the U.S. tests kick-started the fundraising.
Investors chastised EU authorities for refusing to test the impact of a debt default by Greece. But European Central Bank governing council member Christian Noyer said euro zone states have put several hundreds of billions of euros on the table with the support of the IMF to make this hypothesis completely excluded.
(Additional reporting by Steve Slater, Alex Chambers, Ian Simpson and Paul Taylor; Editing by Neil Fullick/Ruth Pitchford)