NEW YORK ( TheStreet) -- Come Monday, February 6, investors will have two events that could make or break the bank stock rally in recent weeks.

In the U.S., the deadline for the foreclosure settlement agreement between the nation's biggest mortgage servicers and the 50 states is expected to expire on Monday. The talks over allegedly deceptive foreclosure practices including "robo-signing" have dragged on for more than a year, but expectations have mounted in recent weeks that the states will finally come to an agreement.

The settlement, expected at $25 billion, will require banks to reduce the principal owed on mortgages for borrowers as well as address their foreclosure procedures. Banks have been seeking a broad release from future claims from the states, but so far federal officials have insisted on having the flexibility to pursue independent investigations against the banks.

States including California and Nevada have expressed concerns over the adequacy of the terms and it remains uncertain as to whether they would sign on to the deal. Analysts contend that a deal without California, which has been among the worst affected by the housing bust, will do little to resolve the legacy problems ailing banks.

Bank of America ( BAC - Get Report), JPMorgan Chase ( JPM - Get Report), Wells Fargo ( WFC - Get Report), Citigroup ( C - Get Report) and Ally Financial- are the five big banks engaged in the talks, though regional banks including US Bancorp ( USB), SunTrust ( STI) and PNC Financial ( PNC) have also said that they have been involved in negotiating a settlement.

While talks have frequently collapsed in the past year, failure to achieve a settlement again on Monday could give pause to the rally in bank stocks. Bank of America, which bears the brunt of the mortgage mess, is up over 30% so far in 2012.

Meanwhile, across the Atlantic, Euro Zone finance ministers plan to reach an agreement in Brussels on a second bailout package of 130 billion euros for Greece on Monday. The agreement is contingent upon private bondholders agreeing to take as much as a 70% loss on their holdings and Athens agreeing to meet fresh demands that include lowering the minimum wage and cutting holiday bonuses, neither of which is likely to go down well with the public.

Deadlines have come and gone for bailing out Greece, but time is running out as the country faces big bond redemptions due in March. Failure to receive the funding in time to meet the redemptions will likely result in a default.

U.S banks have said they have little direct exposure to Greece. JPMorgan Chase CEO Jamie Dimon said at a conference in Davos that the direct impact of a Greek default on the U.S. banks was "almost zero" as CDS exposure was very small and everyone was prepared for the event.

Still, not everyone is confident about the fallout of a default on the Euro Zone. According to Bank of America analyst Guy Moszkowski, Goldman Sachs ( GS - Get Report) management is concerned the most about " the potential for a disorderly Greek default leading to Greece's withdrawal from the Euro, which could of course provoke a rush to move bank deposits ahead of forced conversion. The bigger concern is that, if markets and depositors are not convinced of the ability and determination of the European authorities to "ring fence" other vulnerable markets (Italy and Spain, in particular), then depositors in those countries could come to fear Euro conversion as well, and the consequences would be severe."

It looks like despite signs of a revival in interest in bank stocks, headline risks remain.

--Written by Shanthi Bharatwaj in New York

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