The purpose of the 2011 test was to assess the resilience of participating banks against an adverse -- but plausible -- scenario, the European Banking Authority said in a statement.
Sixteen other banks passed -- but barely, results indicated.
Based on the results the bank authority formally recommended that national supervisory authorities should require banks whose core tier 1 ratio falls below the 5 percent threshold to remedy their capital shortfall promptly.
The EBA has also recommended national supervisory authorities request all banks whose ratio is above but near the 5 percent threshold, and which have sizeable exposures to sovereigns under stress, take specific steps to strengthen their capital position.
Of the banks that failed, the authority said two were in financially troubled Greece, five were in Spain and one in Austria, The New York Times reported.
All of the banks are relatively small players. But the stress tests also could put pressure on some giant banks that have been considered healthy, analysts said. Germany's biggest bank, Deutsche Bank, revealed it narrowly escaped being classified as a bank that would be asked to raise its reserves.
"To me the real question is not stress in the institutions but the ability of states to control the sovereign debt" issue, Paolo Bordogna, head of financial services in Europe for consulting firm Bain & Co., told the Times before the release of test data.