Italy’s central bank was thrown on the defensive yesterday as its banking sector emerged as the standout loser in health checks aimed at restoring confidence in the euro area’s financial sector.

Officials at the Banca d’Italia criticised parameters in regulatory stress tests as unrealistically harsh on the nine Italian banks that failed and disputed the exact number of failures by the European Central Bank. Across the euro area 25 banks emerged with capital shortfalls following an unprecedented regulatory effort aimed at dispelling the cloud of uncertainty surrounding the European banking sector’s health.

The announcement represents the culmination of more than a year of intensive work costing hundreds of millions of euros and involving thousands of officials and accountants – all aimed at restoring investor faith in European banks ahead of the launch of a unified banking supervisor in Frankfurt.