Spain More Important Than Bank Stress Tests: O'Neill

European banks stress tests are not as important for investors as the need for Spain to calm down market jitters about its banks, Jim O'Neill, head of global economic research at Goldman Sachs, told CNBC Wednesday.

Stress tests are "going to be amusing to watch … but the thing that really matters to me is about Spain, actually," ONeill said.

"I'm worried about everybody else being worried," said O'Neill. "This sort of stress test thing that's flying around I think it's the number one issue that needs to be cleared."

But more importantly, ONeill added, investors are really worried about the exposure of Spain's banks and cajas— savings banks—to the country's debt.

"People have got astronomical numbers in their heads about the so called true level of Spanish debt," O'Neill said. Spain needs to declare publicly what the vulnerability of its banks is to further falls in house prices and their exposure to debt, O'Neill said.

Earlier on Wednesday a European Union draft mandate for bank supervisors quoted by Reuters recommended that the bank stress tests should be widened.

Tests should be carried out to address worries about banks' exposure to sovereign debt risk, according to the mandate.

Markets got a brief sigh of relief when European banks requested less funding than anticipated in an auction for three-month loans at the European Central Bank earlier Wednesday.

On Thursday, European banks need to pay back 442 billion euros ($541 billion) they borrowed a year ago from the ECB and many analysts had feared that banks would need more money in the three-month auction.