Banca Monte dei Paschi di Siena, the world's oldest surviving bank and Italy's third-largest, was found to have the largest capital hole to fill at 2.1 billion euros. The other banks with smaller a capital shortfall were Banca Popolare di Milano, Banca Carige and Banca Popolare di Vicenza.
BMPS has hired Citigroup and UBS to advise it on strategic options. There was talk of a possible merger with Intesa SanPaolo on Friday, according to a report in La Repubblica newspaper citing people close to the matter.
However, the newspaper reported that Intesa's chief executive Carlo Messina saw Monte dei Paschi as a problem for the country as a whole that could not be resolved by a private bank with foreign investors holding 31 percent of its shares, La Repubblica said.
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Italy's four offending banks have been given two weeks to tell the ECB how they plan to raise enough capital to fill the capital shortfall and six to nine months to carry out those plans before regulators force them to do so.
Adding insult to injury, credit ratings agency Moody's said BMPS would find it difficult to cover the capital gap within the time frame requested by the ECB without further government support.
The results of the tests do not bode well for the Italian economy, according to a note from Capital Economics' senior European economist Jennifer McKeown. She noted that the number of Italian banks facing a capital shortfall "raises a worrying comparison with Spain's poor performance in the 2011 stress tests, which ultimately led to an EU-funded bank bail-out the following year."
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"The capital that the banks are now being made to raise may not be enough to prevent more problems arising in future. The banks involved may struggle to raise much more capital privately."
BMPS has already received state aid to the tune of 4.1 billion euros in 2013 and in June this year raised 5 billion euros from a heavily discounted rights issue. As well as merger talks, there are media reports citing an unnamed source stating that the bank plans would include a "substantial" capital increase of at least 1 billion euros.
"There may be little investor appetite" for the bank now though, McKeown warned, particularly after trading in shares of the bank had to be suspended twice last Monday after the value dropped more than 20 percent following the stress test results.
The Bank of Italy was keen to put a brave face on the results, stating that "these shortfalls are entirely attributable to the adverse scenario of the stress test." It added that "the results confirm the overall resilience of the Italian banking system, notwithstanding the repeated shocks to the Italian economy in the past six years: the global financial crisis, the sovereign debt crisis, and a double-dip recession."
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The central bank knows well that as well as investor confidence taking a knock, the Italian economy could suffer further as a result, however.
McKeown said that "poor results for Italy suggest that further falls in bank lending there may prolong its recession yet further. Italian banks' troubles threaten to worsen the gloomy economic outlook there and could lead fears about the sustainability of the public finances to resurface."
One credit analyst sounded a brighter note for Italy, however. Jakub Lichwa, credit analyst at Daiwa Capital Markets, told CNBC that if BMPS could plug its capital shortfall – and he was confident that the bank could do so without resorting to imposing losses on any bondholders – then that would potentially instil more confidence in the Italian banking system as a whole.
"If the weakest bank in Italy is able to find the capital resources, then investors will have more confidence in the Italian banking system as a whole," he said.