A group of 25 European banks have failed a key healthcheck of the region's financial system, exposing a 25 billion euro ($31.7 billion) shortfall on their books.
The European Central Bank also found that all of the euro zone's banks have not been strict enough in identifying toxic assets, finding an additional 136 billion euros in non-performing loans.
Of the 25 banks that have failed the ECB's test, which was a snapshot of their books at the end of last year, 12 of them have already covered their capital shortfall.
Those 13 banks still with gaps will now have two weeks to submit a plan to bolster their capital to the European Central Bank (ECB), which will decide whether or not it gets the green light. They will then have up to nine months to cover the capital gap. Any bank that fails to repair its books will then face the prospect of regulatory intervention.
"For banks that failed the test, the biggest challenge now is likely to be successful remedial action in potentially busy, volatile markets which may limit the windows for successful capital issuance," said Edward Chan, banking partner at Linklaters.
Of the 13 banks that still have to bridge the gaps in their capital, Italy faces the biggest struggle with nine of its banks on the blacklist. Monte dei Paschi dei Sienna had the largest capital hole to fill at 2.1 billion euros.
Other than Italy, banks in Greece, Cyprus, Belgium, Slovenia, France, Austria, Germany, Ireland and Portugal also need to raise money in the next two weeks.