NEW YORK ( TheStreet) -- Eight European banks have failed a stress test aimed at restoring faith in the region's ailing banking system after regulators said they fell short of capital requirements by $3.5 billion.

A further 16 of the 90 banks tested just barely met the minimum 5% Tier 1 capital required to pass the test.

This was a slightly better than expected result.

Between 10 and 15 institutions had been expected to fail. Europe's banks, both good and bad, have been weighed down by the ongoing sovereign debt crisis which has translated into a lack of access to short term funding.

The results of the stress tests were issued by the European Banking Authority Friday, which declined to name the banks that failed.

U.S. investors will likely breathe a sigh of relief that worst case scenarios did not materialize.

In a recent report, Fitch estimated U.S. money market funds' exposure to European banks to be roughly 50 percent of their total assets at the end of May. The London-based rating agency warned that money market funds were "a potential channel for euro zone credit market volatility" in the U.S.

However analyst Mark Chandler of Brown Brother Harriman says U.S. funds, bracing for bad news from Europe, have reduced their exposure to European markets in recent weeks. Chandler said rumors that as many as 21 banks had failed were circulating in the hours leading up to the publication of today's results.

Earlier today Citigroup ( C - Get Report), the third largest U.S. bank, revealed it had an estimated $22 billion in "exposures" to countries on the European periphery, including Ireland, Greece, Portugal, Spain and Italy.

Spain was the worst performing country with five failures. Greece had two while Austria had one failure. All banks tested in Italy, Germany and the U.K. passed, however.

Last year's test was widely ridiculed after three Irish banks were given the seal of approval, only to have to seek billions of euro in state funding to shore up their balance sheets a short time later.

This year's process has been criticized for not testing for a sovereign default scenario. Current CDS prices suggest a one in ten chance of a Greek default.