Analysts have criticised the European bank stress tests for being too easy after just seven of the 91 tested failed to make the grade.

Germany's Hypo Real Estate - which is already state-owned and had been widely expected to fail - and Greece's ATE bank and five Spanish banks did not meet the capital requirements demanded by the Committee of European Banking Supervisors under three 'economic shock' scenarios.

They will now have to raise €3.5 billion to boost their capital buffers. However, analysts were quick to condemn the results, which were better than many had been expecting.

Christophe Nijdam, bank analyst at independent equity research firm AlphaValue, says: 'The market wanted blood on the wall but it got Spanish ketchup on the carpet instead. Seven institutions pinned down out of 91 European banks resulting in a failure rate of less than 8 per cent. The American tests had a 53 per cent failure rate with 10 out of 19 US banks at the time. Banks fail and systemic contagion spreads through the liquidity channel, not solvability issues.'

Mark O'Sullivan, director of dealing at Currencies Direct, adds: 'What seems to have occurred is a compromise amongst European banking regulators, with many questioning if the bar had been set way too low in testing the European banking sector.

'It seems the tests may have raised more questions than they have answered and in the coming weeks it will be the interbank lending markets that will have the real answer as to whether real confidence has returned to the European banks.'

Economists add that they do not think the tests will have much of an impact on the economic outlook for Europe with the test only bringing limited comfort to the banking sector.

Jennifer McKeown, senior European economist at Capital Economics, says: 'The adverse economic scenario incorporated a return to only a very mild recession next year. What's more, the prospect of an outright sovereign default (which is what has worried markets most) has not even been considered.

'Losses of only up to 23 per cent on Greek debt have been factored in and even those have only been applied to banks' trading books, not their banking books where the majority of such bonds are apparently held.'

All four of the UK banks sailed through the stress tests. 

Barclays' tier one ratio even improved from 13 per cent at the end of 2009 to a projected 13.7 per cent by the end of 2011 under the EU's harshest simulation.

Meanwhile, HSBC's fell 60 basis points to 10.2 per cent, Lloyds Banking Group's dropped 40 basis points to 9.2 per cent and Royal Bank of Scotland's  fell 3.2 percentage points to 11.2 per cent.

The British Bankers' Association says: 'UK banks have already put in the work to rebuild their businesses and put more money aside against future financial problems. It is no surprise to find they have exceeded the standards set out by CEBS to ensure banks across Europe are well placed to weather any future financial problems.'

Barclays: Diversified blue chip emerges stronger from shocks

Barclays comes out of the European stress tests as the strongest of Britain's four largest lenders, with its tier one capital ratio actually rising. 

Under the regulator's benchmark scenario, which models a mild economic cooling, Barclays' tier one ratio bobs up from 13 per cent to 15.8 per cent. Under the median scenario it gains 90 basis points to 13.9 per cent, while under the 'armaggedon' scenario - which envisages a £740 million write-down to Barclays' banking book after sovereign turbulence and a £473 million loss on its bonds portfolio - it rises 70 basis points to 13.7 per cent.

In all cases, the strengthening of the bank's tier one ratio is a result of Barclays' expected revenues and earnings from around the world.

In a statement on Friday, a spokesperson for the institution said: 'Barclays regularly conducts its own internal stress testing... based on adverse macro-economic shocks and adverse conditions in financial markets, including government bond markets.

'Barclays has also been subject to annual external stress tests across all its books by the FSA since 2009. In each stress test, whether internal or external, Barclays has demonstrated its capital position and resources are sufficient to meet its regulatory capital requirements.'

HSBC: Far Eastern-angled bank takes biggest hit to trading book

HSBC, the FTSE 100 lender whose chief executive works from Hong Kong, would suffer more than Britain's other top banks in the case of an economic slump.

HSBC would endure a £3.7 billion write-down to its trading book in the case of severe sovereign debt difficulties, the stress test results showed, plus a £780 million mark-down on its banking book. But even then its core tier one capital ratio would stand at 10.2 per cent, 60 basis points below its level at the end of 2009 and 1.5 per cent below its level in the regulator's baseline scenario.

HSBC released its sovereign debt positions, which partially explained the projected write-downs.

Just under 8 per cent of the bank's sovereign book, $9.8 billion (£6.4 billion) is held in exposure to periphery eurozone countries. HSBC is particularly exposed to Italy at $6.3 billion and Greece at $1.9 billion.

In a statement, boss Michael Geoghegan says: 'We are pleased to note the Financial Services Authority's (FSA) conclusions on this exercise and view it as a timely and important contribution to building investor and market confidence and supporting financial stability. The outcome for HSBC reinforces what we have been saying - HSBC is both financially strong and well positioned to deal with any further foreseeable economic downturn.'

Lloyds Banking Group: State-backed behemoth easily survives

Lloyds Banking Group's capital position is expected to improve under the European board's benchmark scenario.

The bank, still 43 per cent owned by the taxpayer, is projected to increase its tier one capital ratio from 9.6 per cent at the end of 2009 to 10.8 per cent in normal conditions. Under the most extreme case modelled by the European Union, it will take a £1.4 billion hit to its banking book and lose a further £23 million on sovereign exposure, bringing its tier one ratio to 9.2 per cent.

Lloyds was at pains to point out the tests did not take into account its contingent capital or its ongoing efforts to shrink its balance sheet.

The bank also released a breakdown of its sovereign exposures at the end of June. Lloyds has no exposure to the 'PIIGS' countries of Portugal, Ireland, Italy, Greece and Spain, with the majority of its book - £5.3 billion of £7.7 billion - in UK bonds.

A spokesperson stats: 'We welcome the positive steps being taken by CEBS to assess the overall resilience of the EU banking sector and to provide comfort on banks' ability to absorb further possible credit and market shocks. Lloyds Banking Group has a robust capital position that reflects the significant capital raising undertaken in 2009.'

More detail on Lloyds' recovery will come at its interims in August.

Royal Bank of Scotland: Sir Fred's former empire stabilises

Royal Bank of Scotland has made significant progress since the government rescued the empire built by Sir Fred Goodwin from collapse.

The Scottish bank would have to write down £1 billion from its banking book and £1.8 billion from its sovereign debt portfolio under the European regulator's meltdown scenario, but even then its core tier one capital ratio would stand at 11.2 per cent.

Goodwin's disastrous takeover of ABN Amro left the bank staggering in the financial crisis of 2008. He resigned as chief executive that October after the government was forced to prop up the bank.

In a statement, RBS says it remains committed to restructuring itself by de-risking its balance sheet and improving its tier one capital ratio.

Finance boss Bruce Van Saun says: 'We support the need for banks to maintain strong capital ratios and we believe that stress tests like these, whilst theoretical, can provide insights into absolute and relative strength. We are pleased the results demonstrate the strong capital position of RBS as we endeavour to execute our recovery plans over the coming years.'

RBS emphasises that the EU's stress tests were theoretical and do not represent a forecast by the bank as to its performance should any of the scenarios play out.