Government leaders and the IMF on Saturday hailed stress tests on European banks which failed seven of the 91 institutions checked, but markets remained nervous about the credibility of the exams.
German state-owned lender Hypo Real Estate, five regional savings banks in Spain and ATEBank of Greece failed the test of whether they could resist a new financial shock.
The euro fell just after the release of the results but made up the lost ground. US stocks also ended slightly higher but European governments face a nervous wait for markets to reopen Monday to get the full global reaction.
German state-owned lender Hypo Real Estate, five regional savings banks in Spain and ATEBank of Greece failed the test of whether they could resist a new financial shock. All have been ordered to recapitalise or take state aid.
The Committee of European Banking Supervisors (CEBS), which carried out the tests, said the seven banks would need about 3.5 billion euros (4.4 billion dollars).
The stress tests were intended to reassure markets over the health of the European banking system and political leaders and the head of the International Monetary Fund were quick to praise the tests and the results.
Many experts and economists were sceptical though.
The European Union's Belgian presidency said: "The aggregate results of the tests show a high degree of resilience in the EU banking sector as a whole, reflecting the efforts undertaken over the last years by the banks and some governments to restore confidence in the European banking sector."
Belgian Finance Minister Didier Reynders, speaking for the EU, told AFP the results were "positive because we have been transparent and the tests were quite strict."
Spain's Finance Minister Elena Salgado insisted the results were "satisfactory" despite the failure of the five savings banks.
"The Spanish financial system has overcome the financial crisis very well," she declared.
IMF managing director Dominique Strauss-Kahn said the tests were "a major undertaking and represent an important step toward improving transparency and bolstering market confidence."
"The publication of the results and the actions that have been announced to address bank capital deficiencies promise to significantly strengthen the European financial system," he added.
US Treasury Secretary Timothy Geithner said the EU "has made a significant effort to increase disclosure on the conditions of individual European financial institutions and enhance market stability."
Some analysts however said the checks failed to shed much light on the real state of the banking sector.
The report spared all banks examined in debt-laden Portugal. Greece, which sparked fears for the stability of the entire eurozone and was rescued by an EU and IMF bailout, also got off lightly with just one bank failing.
Another focus of concern, Ireland, saw its banks also pass the CEBS capital ratio test, as did Italy. French and British banks likewise emerged with pass grades.
Neil MacKinnon, an economist at VTB Capital in London, said it "looks like a whitewash and the initial reaction is one of scepticism on the part of the markets."
ING bank analyst Chris Turner said the CEBS announcement "does not appear to have uncovered any 'skeletons in the closet'," but added: "Whether it goes far enough remains to be seen."
Vitor Constancio, vice-president of the European Central Bank and a CEBS member, insisted the stress tests were "a substantial and severe test, both in macroeconomic terms and in financial terms."
The tests measured the banks so-called Tier One core capital and measured it against outstanding assets, such as loans. A key test was the effect a government debt crisis would have on balance sheets which hold large amounts of government bonds.
Banks must maintain a minimum ratio of 6.0 percent. The CEBS calculated the seven risk banks would see this ratio fall below six percent.
The CEBS estimated by the standard of its test that the total potential damage to balance sheets at the 91 banks -- which account for 65 percent of the European banking market -- would be 566 billion euros (727 billion dollars) over two years if certain tough conditions hit.
If markets judge the tests too weak, analysts have warned the result could be to undermine or even negate the exercise.
Britain's influential Financial Times newspaper highlighted the nervousness in a commentary on Saturday and said the European exercise was "neither uniform, transparent or stressful enough, but it is a good step forward if treated with caution."