Euro zone banks that failed or barely passed this year's health checks will have to demonstrate they can make sustainable profits and may need to sell off loss-making units, the European Central Bank's top banking supervisor said.
Daniele Nouy heads the ECB's banking supervisory arm.
She said that simply finding more capital to plug shortfalls uncovered by the stress test may not be enough.
"Partly because of the financial situation in Europe and partly because of the structure of the banking systems in Europe the sustainable profitability is probably the main challenge and the main risk for banks in the coming years," Nouy told Reuters.
"They have to establish sustainable profitability," she stated.
She also cautioned that there are a number of banks that went through the comprehensive assessment, but might not go through next time.
Permanent TSB was the only Irish bank to fail the ECB tests.
From this month, the ECB became the direct supervisor for the single currency area's top 120 banks like Santander, BNP Paribas and Deutsche Bank with powers to force them to top up their capital buffers or make other changes to keep them safe and sound.
Nouy has already asked some of the banks who struggled in the stress test to resubmit their plans for reinforcing their capital buffers.
"When we review the capital plans of the banks with a shortfall now it's totally about business model, it's the most important dilemma," she said.
"We are not considering that one category of business model is better than another," she said.
"A lot of bankers are not in denial. They may not be rushing to take measures, but they know this is something they will have to address."
Jose Vinals, director of monetary and capital markets at the IMF, last month said an IMF study showed only about 30% of euro zone banks had a structure able to deliver a reasonable rate of return over time to build capital and support new lending.
This compared to about 80% of banks in the US.
