"Clearly what some of the Spanish banks have on their balance sheets are assets which are losing in value pretty much every month which is the huge housing stock that has been built over the last decade," Kraemer said.
Given that Spanish banks' provisions for loan losses are only estimated at around 190 billion euros, the shortfall in provisions could be up 50—60 billion euros ($63.7 billion—$76.5 billion), requiring government support for the smaller institutions which don't have sufficient own resources, according to the IIF.
"There is a significant likelihood that something else will follow because the banks' balance sheets are now being investigated by the external evaluators of the auditors so we'll know more about that later on," Kraemer said.
"But I think the markets would take great comfort from a situation where the issue of capitalization of Spanish banks is left behind by injecting capital. Going through the market will be very, very difficult at the moment so much of the funding would have to come from the government in all likelihood," he said.
He said Greece exiting the euro zone was not the S&P's "base case" but "it's a real possibility that we'll have a government that will not take a constructive view with the current approach."
Greek Exit 'Calamitous'
"In this case I would expect that there is great reluctance on behalf of the European partners to continue with the disbursements of the funds. The moment the funds would not be disbursed anymore, Greece would have to adjust even more strongly, because there's not enough money in the budget to spend even on non-interest spending. The austerity would have to be increased," Kraemer said about how a Greek exit may be forced.
The social and political environment in Greece if foreign aid is turned off would be such that the country would have to leave the euro, even if the radical left party Syriza, which is anti-bailout, insists it wants the country to stay in the single currency area.
"An euro zone exit for Greece in our view would be truly calamitous for Greece itself," Kraemer said.
European Union leaders are meeting Wednesday evening in Brussels to discuss their options on dealing with the Greek crisis, which threatens to bring down the euro zone, and one solution that some policymakers have proposed is the creation of common euro zone Eurobonds.
But Eurobonds, in the form they are discussed, are unlikely to be endorsed by Germany and they are forbidden under the EU Treaty, which prohibits countries from taking on the debt of other members.
"In a way we do have some sort of Eurobonds already, which is the EFSF. Every government guarantees a share of that already and the money is going where it's needed," Kraemer said.
Some analysts said the European Central Bank should do a third two-year Long-Term Refinancing Operation (LTRO) with a maturity of three years, like the ones it did in December last year and in February this year, but Kraemer disagrees.
"I think we need to grasp that if you have a solvency problem, being at a state or a banking system level, you cannot fix that with liquidity measures, you have to take the bull by the horns so to speak," he said.