Davy Stockbrokers has suggested that losses in the main banks could be between €1-2.5 billion more than revealed in last year's stress tests.
In analysis of the mortgage arrears situation, Davy said the banks need to move beyond short term measures.
The stockbrokers urge the banks to take serious action about write-downs and repossessions, particularly in the buy to let market.
They forecast that owner occupier arrears will peak at 16.5% from a level of 13.4% in the first quarter of this year.
However, a slowly stabilising labour market should reduce the pace of mortgage arrears.
Davy pointed out that the number of owner occupiers in arrears of over 90 days rose to 78,000 in the first quarter of this year, up sharply from the 32,000 in the first quarter of 2010.
But arrears rates for buy to let mortgages - which account for almost 25% of total mortgage lending - are running at over two times the owner occupier rate.
The stockbrokers said they now believe that over 50% of Irish mortgages are now in negative equity. Cuts in wages and higher taxes are pushing some marginal borrowers into arrears, but Davy said the key factor for people falling behind in their mortgage repayments has been labour market developments.
''Falling employment and rising long-term unemployment has reduced households' ability to pay,'' Davy stated. However it noted that the sharpest falls in Irish employment now appear to have passed and it predicts that employment to rise marginally next year.
Free Legal Advice Centre welcomes report
The Free Legal Advice Centre has welcomed the report.
Speaking on RTÉ's News at One, FLAC's Noleen Blackwell said that short-term measures such as extending the term of a mortgage, are not enough as they fail to address the core issue that many people simply cannot afford their mortgages.
"Banks lent too much, borrowers are paying too much, but there has never been a recognition that the loan is too big to ever repay
"All Davy's are saying is what any common sense person would have to say and that is, if the loan is too big to ever repay then either someone must abandon the loan, which would lead to repossession, which is not the preferred option, or you have to restructure the loan by writing down the principle," she added.