A year after European officials bailed out Greece, investors saythe region's banks haven't raised sufficient capital or cut loansenough to withstand the contagion that may follow a default.

While European lenders reduced their risk tied to Greece by 30percent to $136.3 billion last year by not renewing loans, writingdown the value of debt and shifting it off their books, they stillhave almost $2 trillion linked to Portugal, Ireland, Spain andItaly, figures from the Bank for International Settlements show,leaving them vulnerable if the crisis spreads.

“The Greek debt situation certainly has the potential to createhavoc with the European banking system,” said Neil Phillips, a fundmanager at BlueBay Asset Management Plc in London, which overseesabout $45 billion. “A Greek default and the ramifications of thatwould be too ghastly for Europe and the European banking system tocontemplate right now.”