The upcoming European banking asset quality review will represent the sector's "last chance" to prove its credibility, former Bank of England Governor Mervyn King told CNBC.
The European Central Bank (ECB) plans to publish the results of the review of 128 bank balance sheets in late October and will assess the actions banks have taken to strengthen their capital positions.
"Financial markets will be looking very carefully in the autumn at whether the statements made about the capital positions of different banks are really credible and a lot hangs on this," King told CNBC following his keynote speech at the Diggers and Dealers 2014 conference in Kalgoorlie on Monday.
"The previous stress tests for banks in Europe didn't really convince markets of their seriousness – and this is a really last chance for Europe to put in place a really credible set of tests on the financial worthiness of all the banks in Europe," he added.
European authorities have conducted regular bank 'stress tests' since 2009, designed to increase the sector's resilience to another economic downturn and restore investor confidence, but the 2014 round has been billed as the toughest.