An assumption that governments will bail them out is keeping European banks' debt above junk status in the opinion of major rating agencies, but such implicit reliance on state aid is clouding future attempts to raise capital from private investors.
StarMine, a Thomson Reuters company which calculates default probabilities using quantitative data, however rates the debt of major banks across Europe at no higher than 'speculative grade' or 'junk'.
That contrasts with more flattering headline ratings from large credit ratings agencies, which take into account factors like state support for banks which are seen as too big to fail, effectively ruling out a default.
While injections of liquidity from central banks, or assurances of state support keep institutions running and fend off bank runs, they do not help the banks make a case to fund managers that they are good investments.
The problem becomes more urgent following estimates this month that banks in Spain alone could need an extra €100 billion to cover bad debts and avoid further fuelling the euro zone crisis.
The StarMine "implied" rating reflects the underlying strength of the business if state lifelines are stripped away, suggesting banks would struggle to raise capital from private investors if they lurch back into crisis.
For example, StarMine analysis shows the debt of Spain's Santander has a B+ credit rating. In contrast, among the main ratings agencies, Fitch gives it an A, Standard and Poor's puts it at A- having downgraded a number of Spanish banks on Monday, while Moody's rates it Aa3.
On Thursday, Santander reported first quarter net profit had dropped 24% after it made a €3.1 billion provision to cover rising loan defaults, as the effects of Spain's property market crash were compounded by recession and widespread unemployment.
For Santander's principal rival, BBVA, the contrast in default risk rating is similar, with a StarMine implied score of B+ compared with Aa3 from Moody's and BBB+ from S&P and A from Fitch.
Fitch also assigns "viability ratings" for financial institutions, representing its view on standalone creditworthiness, aside from ratings that factor in potential support, such as from governments.
The contrasts are equally stark elsewhere in Europe. French bank Societe Generale has a StarMine implied rating of CCC+, against A from S&P.
In the case of British partly nationalised banks Lloyds and Royal Bank of Scotland, the contrast between StarMine's implied ratings and the scores from agencies bodes ill for the government's plans to sell off its stakes.
The StarMine rating for RBS debt is B-, while S&P rates it a more flattering A- and Fitch gives it an A.
Corporate financiers also warn that while close links between banks and governments rule out outright bank failures, investors' concerns about the creditworthiness of those states mean banks would struggle to seek capital from investors.
Even once banks have benefited from state support, investors worry about the banks' continued dependence on a financially weakened government.
Late on Thursday, Standard and Poor's said it was likely the Spanish government would have to put more funds into banks as it announced a two-notch downgrade of the government's debt.
But not all agree that Europe's banks will have to subject themselves to the judgment of investors.
