By Greg Peel

The Dow closed down 94 points or 0.8% while the S&P lost 0.8% to 1305 and the Nasdaq dropped 0.9%.

As noted in yesterday's Monday Report, the European Banking Authority has conducted stress tests on 90 European banks and found only eight have failed, suggesting more capital will be required under the test's heightened debt crisis scenario. However, markets were critical that the tests were too benign and that the parameters had been set before the Italian blow-out and before talk of Greek partial default.

For example, the EBA's test assumed a write-down of Greek sovereign debt of only 15% while the credit default swap market has Greek debt trading at 50 cents in the dollar, or a 50% write-down. So over the weekend the world's large investment banks, including Goldman Sachs, SocGen and others, conducted their own stress tests based on the now disclosed information.

Factoring in greater losses on peripheral debt, Goldmans suggested 18 banks would fail. Add in a 10% write-down of Spanish and Italian debt and 27 banks fail. Other houses used other combinations of parameters for their own tests and the bottom line is all concluded that many more European banks would need more capital, with results ranging from E26bn to E80bn in total.