THREE IRISH BANKS are to be subjected to yet another round of stress tests, as part of the one of the first activities of a new pan-European banking watchdog.

The European Banking Authority (EBA), the EU’s new supervisory agency, will perform stress tests on 91 European institutions including AIB, Bank of Ireland and Irish Life and Permanent.

The renewed tests are seen as an attempt to atone for the poor outcomes of similar EU tests carried out last summer. In those tests, AIB and Bank of Ireland were both given a clean bill of health – only to eventually require fresh billions of taxpayer recapitalisations in the months that followed.

Banks that fail the tests could be ordered to raise new capital or face orders to wind down their operations, the New York Times reports – adding that the rules outlined by the EBA today could be particularly problematic for German institutions.

Many of the federal republic’s smaller local banks, its report explains, will have certain portions of their shock-absorbing reserves disqualified from the tests.

Any capital shortfalls found in the so-called ‘Landesbanks’ could see the provincial governments, which commonly own major stakes in such banks, forced to step in and recapitalise them.

Any bank that just scrapes through the new rules will be forced to outline a plan of action to address specific weaknesses, Reuters further adds.

The results of the new exams will be revealed later this summer. It is considered virtually impossible for the tests to demand that the three Irish institutions raise any further capital beyond the amounts pledged by the government last week.