European banking regulators say seven of 91 banks do not have enough cash to survive another recession.
The London-based Committee of European Banking Supervisors announced the results Friday of its so-called stress tests.
The tests were designed to help reassure investors and the public about the stability of the financial system even as many countries confront rising debt levels. Investors worry that many banks have loaned money to European governments and could fail if governments begin defaulting on the loans.
Friday's report said the seven banks that failed the stress tests need to raise a combined $4.5 billion. They include Germany's Hypo Real Estate, Greece's ATE Bank and five Spanish regional banks.
Hypo Real Estate has already been taken over by the German government.
The Committee of European Banking Supervisors is made up of representatives from banking authorities and central banks of the European Union.
Some investors have been worrying about the reliability of the tests, but the London-based committee said in a statement that the results "confirm the overall resilience of the EU banking system."
French Finance Minister Christine Lagarde also praised the stress tests, telling the Associated Press the tests were tough and "very comprehensive." On Wednesday, German Chancellor Angela Merkel defended the tests, calling the conditions realistic.
The United States conducted its own so-called stress tests of its major banks last year to "reassure" the public about the economic strength of key institutions. Ten banks were told to raise funds so that they could survive in case the U.S. economy declines further.
Meanwhile, reports from Germany and Britain Friday show signs Europe's economy is growing further.
A survey of business leaders at 7,000 firms found business sentiment in Germany rose to its highest level in three years in July.
The Munich-based Ifo Institute said the increase from June to July is the largest in 20 years, describing Europe's largest economy as being in "a party mood."
Separately, Britain said its gross domestic product - the total of all the goods and services produced in the country - rose more than one percent in the three months ending in June.
Some information for this report was provided by AP, AFP and Reuters.