Europe's banks, sitting on $1.19 trillion of debt to Spain,Portugal, Italy and Ireland, are facing a wave of losses if Greeceabandons the euro.

While lenders have increased capital buffers, written down Greekbonds and used central-bank loans to help refinance units insouthern Europe, they remain vulnerable to the contagion that mightfollow a withdrawal, investors say. Even with more than two yearsof preparation, banks still are at risk of deposit flight andrising defaults in other indebted euro nations.

“A Greek exit would be a Pandora's box,” said Jacques-PascalPorta, who helps manage $570 million at Ofi Gestion Privee inParis, including shares in Deutsche Bank AG and BNP Paribas SA.“It's a disaster that would leave the door open to other disasters.The euro's credibility will be weakened, and it would set aprecedent: Why couldn't an exit happen for Spain, for Italy, andeven for France?”