News that just seven out of the 91 banks stress-tested by European regulators had failed led analysts to slam the result.
News that just seven out of the 91 banks stress-tested by European regulators had failed led analysts to slam the result, saying it was unlikely to provide the market with the comfort it had been looking for.

"We would view this as not a sufficiently conservative set of tests," said Robert Law, co-head of banks research at Nomura. "We do not think this will provide a positive catalyst for the market."

Stephen Pope, chief global equity strategist at Cantor Fitzgerald said: "I see nothing stressful about this test. It's like sending the banks away for a weekend of R&R."

Of the seven banks to fail the test which required a financial institution to maintain a Tier 1 capital ratio of more than 6pc five were Spanish, one German, and one Greek.

In total the banks will need to raise 3.5bn (2.7bn) to reach the minimum Tier 1 capital ratio required.

This figure is far below even the most conservative estimates of most banking analysts, who had expected European banks to face pressure to raise tens of billion of euros to bolster their financial positions.

US law firm Allen & Overy described the test as a "failure" and said banks that had only just passed would now be under pressure from the market to improve their capital ratios.

"There is little evidence that the tests have been applied consistently and there is a lack of credibility, making this a wasted opportunity," said Richard Cranfield, chairman of Allen & Overy's global corporate group. "One assumes those banks that have failed will be rescued or recapitalised."

The results provoked a short-lived rally in the euro against the dollar. However, the single currency fell back as criticism of the tests grew with the publication of further details on the methodology.

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland were as expected given a clean bill of health. The weakest performer was Lloyds, which passed the most difficult test with a capital ratio cashion of three percentage points, while the strongest was Barclays.

Some investors were prepared to give the tests their support and said it could act as the prompt for the European authorities to provide more support to the region's banking sector.

"The test sends a strong message to European politicians that they need to support the banking system," said Robin Creswell at fund manager Payden & Rygel Global. "The European banking industry is in a postion not unlike where we once were with RBS, and this should be the prompt for policymakers to provide more active support to banks."

With the weekend to pore over the test results, expectations are for an active trading session on Monday as the market offers it first considered verdict.