The EU banking regulator has said that it will publish the results of its stress tests on euro zone banks next Friday.
The results, carried out on 91 banks that represent 65% of Europe's banking sector, including three Irish lenders, Bank of Ireland, AIB and Irish Life and Permanent, will be published at 4pm on 15 July, the London-based European Banking Authority said in a statement.
'The test is being applied consistently across participating banks as part of a coordinated EU wide effort to improve transparency, identify vulnerabilities, inform policymakers and ensure appropriate measures are taken to address possible deficiencies,' the EBA said.
'The presentation of the results will also include clear disclosure of credit and sovereign exposures.'
The tests are designed to combat criticism over last year's banking sector review which found that just seven out of the 91 European banks inspected were vulnerable to economic stress.
Of the 91 tested in 2010, five in Spain, one in Germany and one in Greece failed to pass but those cleared included Irish banks, AIB and Bank of Ireland, which subsequently needed billions more in bail-out funds.
European countries will support banks that fail stress the tests if those lenders cannot raise capital from investors within six months, Reuters news agency reported earlier, citing a draft EU document it had seen.
The paper, being prepared for EU finance ministers to approve on Tuesday, is an about-face from promises by G20 policymakers in the wake of the financial crisis that taxpayers would never have to bail out banks again.
Lenders that nearly fail the tests will be put on a critical watch list in case they deteriorate further, the document says.
Those banks will be given until the end of September to repair their finances and will then have a further three months to implement this.
News that EU governments appear serious about supporting banks that fail to maintain core capital of 5% in the face of several theoretical markets shocks lifted Bund futures and UK gilts.
The Italian/German 10-year yield spread hit fresh euro era highs amid fears that already fiscally stretched countries like Italy may have to dig into their pockets to bail out banks that fail the test as well.
According to the document, capital-raising plans should first be based on 'private-sector measures, including ... retained earnings ... raising additional common equity or high quality hybrid instruments from private investors, assets sales, mergers.'
But if the search for private capital leads nowhere, then governments should be ready to step in.
Officials do, however, make provision for 'the extreme case' if efforts to rehabilitate a bank fail and it threatens wider stability, recommending 'a process of orderly restructuring and resolution.'
The number of banks declared by the EBA to have failed will either encourage investors that Europe is now coming clean with its banking problems, or if the tests are deemed too lax again, they will hurt the EU's already battered credibility.
Previous stress tests are widely dismissed as too lax - all Irish banks passed last year's test just months before the EU and International Monetary Fund had to bail them and the country out.
In the document, dated 7 July, officials write that banks that miss the 5% capital pass mark will be given until the end of September at the latest to submit recapitalisation plans, with a further three months to implement 'private-sector measures.'
'If the relevant banks are unable to implement a credible capital plan by the specified deadlines the (government) stands ready to take necessary measures to maintain financial stability,' officials write in the document.
The new checks will measure how well the core capital that banks rely on to absorb losses such as unpaid loans holds up when exposed to an economic dip or fall in property prices.
They also gauge the impact on banks should government bonds they own, issued by states such as Greece, lose value.
Those banks that come uncomfortably close to the 5% threshold will also be singled out for special attention.
'Banks where the (core tier 1) ratio is above but close to the 5% benchmark under the stress scenario will be subject to reinforced prudential scrutiny so as to ensure that there is no unexpected deterioration in their capital position.'
