European Central Bank President Mario Draghi has warned the Irish banking sector remains a source of "some concern".

He said what he called "outstanding issues" still required swift and decisive action.

Speaking to a committee of the European Parliament, Mr Draghi warned that the recent balance sheet review, carried out by the Central Bank, "falls short" of the more stringent test that would be carried out ahead of the ECB assuming the role of overall banking supervisor next year.

He said the exercise carried out by the Central Bank was "not forward looking".

Responding to a question by the Fine Gael MEP Gay Mitchell, a member of the parliament's economic and monetary affairs committee, Mr Draghi also said the ECB had a "positive, but more cautious," assessment of the budget for 2014.

"When we look at Ireland we can see that programme implementation has been, and is, consistently on track," he told MEPs.

"We still have a positive, but more cautious, assessment of the budget for 2014 even if targets are likely to be met."

He said Ireland's deficit to GDP ratio was "credibly" set at 4.8%, "which over performs relative to the excessive deficit procedure requirement of 5.1%".

However, he added: "The Irish banking sector remains a source of some concern, with outstanding issues still requiring swift and decisive action. 

"The recently submitted results for the Irish specific balance sheet assessment exercise indicated that while no capital shortfalls were identified there is a need for adjustments to provisioning as well as risk weighted assets."

This means that banks will have to set aside capital to pay off any future loans which go bad.

Mr Draghi said these issues should be addressed before the new Single Supervisory Mechanism's comprehensive stress tests are carried out next year.

"So it should be clearly stated that the BSA just conducted is not forward looking in nature and it does fall short of a stringent stress test that is ultimately required and will be conducted when the SSM comprehensive assessment takes place," he said.

Draghi worried by euro zone bank resolution plan

Meanwhile, Mr Draghi has said the latest plans to wind up failing euro zone banks may be overly complicated and inadequately funded.

Under the terms of an EU proposal seen by Reuters over the weekend, the cost of closing down a bank in the currency union will initially be borne almost fully by its home country.

But the obligations of euro zone partners will gradually rise to be shared equitably after ten years.

"I am concerned that decision-making may become overly complex and financing arrangements may not be adequate," Mr Draghi said.

"I urge you and the council to swiftly set-up a robust Single Resolution Mechanism, for which three elements are essential in practice: a single system, a single authority, and a single fund. We should not create a Single Resolution Mechanism that is single in name only," he added.

According to the terms of the EU proposal, the cost of closing down a euro zone bank will initially be borne almost fully by its home country, but the obligations of euro zone partners will gradually rise to be shared equitably after ten years.

After the euro zone's financial storm, countries are considering a fresh blueprint outlining what to do when a bank fails, a critical second pillar of a wider reform dubbed "banking union".

Under the proposal, the costs of closing down a bank in the first year of operation would be fully covered by a fund set up by the home country where the bank resides.

Such funds would be set up in every euro zone country and each would be filled from fees paid in by banks in the respective countries, amounting each year to 0.1% of all covered deposits they hold.

Such funds would reach their full size of 1% of all covered deposits after ten years, but in the first year each would have only 0.1% of all covered deposits in a euro zone country, then 0.2% in the second, and so on.

If the accumulated money from bank fees in a home country in the first year is insufficient to finance the closure of a bank, other funds in euro zone countries would be expected to contribute up to 10% of their accumulated money to help.

In the second year, the home fund would only be obliged to use up 90% of its accumulated funds to finance the cost of closing down a bank before it could call on its euro zone partners, who would be required to chip in with up to 20% of what they hold to help.

The obligation for the home country before it could call on partners would decrease by 10% each year and the potential obligation for other euro zone countries would rise by 10%.

In this way, by the tenth year, the home country fund would only have to contribute 10% of their funds before calling on its euro zone partners who, like the home country, would be obliged to contribute whatever was required - up to 100% of their total funds - to pay for the bank closure.

If the cost of closing down a bank in any of the ten transition years turns out to be bigger than the combined home country contribution and the proportionate percentage help of other funds, the home country fund could impose an additional levy on its own banking sector.

If that were still insufficient, the government of the country in which the bank is located could provide bridge financing, to be repaid from bank fees later, or if it does not have the cash, it could ask for a programme from the euro zone bailout fund ESM, like Spain did in 2012.

All the national funds for closing down banks would be merged into one Single Resolution Fund for the euro zone after ten years and from that moment the Single Resolution Fund would finance all bank closures, fully mutualising risk.

Setting up the Single Resolution Fund and the complex risk and cost sharing arrangement over the ten transition years is to be enshrined in an intergovernmental treaty, which is to be negotiated by euro zone countries by March 1, 2014, the Lithuanian proposal said.

The use of Single Resolution Fund would be decided by the Board of the Single Resolution Authority, made of up representatives of euro zone countries and institutions.