Irish banks passed new European stress tests today but eight others, mainly in Spain, failed.
The tests on 90 European banks, including Bank of Ireland, Allied Irish Banks and Irish Life & Permanent, were designed to assess whether the banks would have enough capital to withstand a hypothetical economic shock.
A previous probe was discredited largely because AIB, having passed the test, was two months later found to require €8bn more to keep it afloat.
This round is being closely watched because confidence needs to be restored in the banking sector against the backdrop of growing financial woes in countries like Greece, Italy and Spain.
Eight banks failed the tests with a combined shortfall of €2.5bn in capital, the European Banking Authority said.
A further 16 banks narrowly passed the tests, which examined the abilities of 90 top lenders across Europe to endure a shock.
Spain, whose economy and banking system are still reeling from a collapsed property market, is home to the largest number of failures - five banks dipping below the 5pc capital ratio threshold, the EBA said.
Two Greek banks and one Austrian bank also failed the tests.
Other countries with banks that barely passed include Cyprus, Germany, Greece, Italy, Portugal and Slovenia.
Analysts had expected between five and 15 European banks to fail the tests with some regional German institutions considered the most vulnerable.
The number of banks being tested was originally 91.
However, German bank Helaba pulled out on this week as part of a dispute the European Banking Authority and it will announce results separately.