Europe's banks would be 80 billion euros ($113 billion) short of capital under a tough test of their health, more than 30 times the amount demanded in an official test, according to a leading analyst.
Eight small banks on Friday failed a test of how 90 European lenders would withstand a two-year recession and were told to raise 2.5 billion euros.
Twenty top banks would fail a more severe test based on the data they supplied in the official test, with lenders in Britain, France and Germany all falling short, said Kian Abouhossein, an analyst at JPMorgan, in a note on Saturday.
The official tests were criticized for not applying a haircut on sovereign bond holdings in the banking book and having too low a pass mark.
EBA stress test II is yet again an opportunity missed for EU member states encouraging banks to raise equity as Basel 3 ratios remain low, Abouhossein said.
Europe's banks would need 41 billion euros to keep their core capital ratio above 7 percent, rather than the 5 percent pass mark used in the official test, according to Reuters calculations.
JPMorgan said the shortcomings meant the results were of limited value, although the test provided far greater data and transparency than has been available in the past, allowing analysts to run an acid test for 27 banks using stricter criteria including haircuts on sovereign banking book exposures and a 7 percent pass mark.
The banks tested would show an 80 billion euro capital deficit, including 25 billion euros for UK banks, 20 billion euros for French banks, 14 billion for German banks, 9 billion for Italian banks, 4 billion in Spain, 4 billion euros for Portuguese banks and 4.5 billion in Austria, Abouhossein said.
(Reporting by Steve Slater, editing by Jane Baird)