The European Union has released a list of 91 banks, representing 65% of the European banking sector, that will be assessed for their ability to withstand financial shocks.
Among the banks to undergo the 'stress tests' are major European banks including Deutsche Bank and BNP Paribas, and the UK's big four banks: HSBC, Royal Bank of Scotland, Lloyds and Barclays.
While all the big names will be tested, the EU is largely focusing on the region's smaller savings banks, particularly in Spain and Germany, as these are the ones the markets are most concerned about.
Banks will have to prove they can withstand a downturn if the economy was to shrink by about 3%, as well as higher inflation, the BBC reports.
The release of the details caused European markets to rally, led by strong gains in bank stocks overnight.
Bank bonus limits approved
Meanwhile, the European Parliament has approved a deal placing new limits on bankers' bonuses from next year.
Under the deal, bankers will receive no more than 30% of their bonus immediately, the BBC reports. Remaining payments will be deferred and linked to long-term performance.
The new rules mean about half of bankers' bonuses will be delayed for three to five years.