European banking regulators are to toughen stress tests on banks after last year's results failed to uncover the extent of financial turmoil at some Irish lenders, the Financial Times reported Monday.

The European Banking Authority (EBA) is preparing to introduce a 'near fail' category as part of a mechanism to force recapitalisations on weaker banks, the FT said.

Recognising the shortcomings of last year's exercise, EBA chairman Andrea Enria told the FT he was determined to make the exercise more credible and to use it as a trigger for a thorough recapitalisation of Europe's weakest banks.

"What I would very much like to see is not a simple pass-fail outcome to these tests -- if you pass, nothing to be done, if you fail, you have to raise capital by that amount.

"It would be nice to have supervisory actions also for banks that have maybe passed the test but are very close or have other areas of concern."

To achieve that, he said "supervisory action might include also pressure on (dividend) distributions," referring to suggestions that banks should hold onto more of their profits rather than pay out so much to shareholders if they are seeking to bolster their financial health.

The EBA is due to name the banks facing the new tests on March 18 and to publish the results in June.

The stringency of the tests carried out in July 2010 was heavily criticised after Bank of Ireland and Allied Irish Bank passed them only to need massive bailouts a few months later, pushing Ireland itself to then ask for help.

Of the 91 European banks tested in July, only seven -- five in Spain, one in Germany and one in Greece -- were judged to be vulnerable to a fresh crisis.