The news that finance minister Brian Lenihan is setting an aggressive target of the end of this quarter for the post-Nama recapitalisation of the banks may be over-ambitious, but it has the virtue of focusing attention on a visible goal.

But just as one banking problem appears to be nearing resolution, another looms into view. This problem is not new either. In fact, it is what caused the financial crisis in the first place and what forced Lenihan to guarantee the bank liabilities. That problem is funding and Bank of Ireland and AIB are both in a bad place.

Last week, Barclays Capital released a comprehensive report on the funding situation in European banks. The authors predict that well-funded banks with strong brands in the debt markets will have a major strategic advantage over weak banks – those with massive funding requirements who have to roll over bonds at high costs on short time scales. Not only will banks with funding problems struggle to achieve strategic goals, but difficulties in sourcing liquidity at competitive prices will increasingly erode earnings.

Barclays believes three key criteria will separate the winners and losers:

? How short bond durations become

? How large refinancing requirements are relative to size

? How much the debt will cost

For AIB and Bank of Ireland, the answers are very short, very large and a lot. In fact, among the 35 listed banks Barclays analysed, Bank of Ireland came out by far the worst with an estimated additional funding cost of 141% of expected 2012 profits. AIB placed fourth-worst, but with a less burdensome 28% impact on 2012 earnings.

What's behind these discouraging numbers? Two main factors are at work in the debt outlook for European banks at the moment. The first is the need to extend bond terms after years of habitual short-term financing and securitisation. The second is the well-flagged – but no less painful – withdrawal of central bank emergency funding supports, which is expected to take place over the next year.

Across all European banks, wholesale funding made up nearly 70% of bank funding by 2008 as easy liquidity made the acquisition of deposits less of an imperative. This drove a funding gap between loans and deposits of more than €3,000bn across the sector. More significantly, bond maturities shrank during the boom as credit expanded, creating a wave of refinancing which continues to break across the industry.

Looking at the Irish banks, AIB is somewhere in the middle of the pack with an average maturity on its outstanding bonds of just under two years. This gives it a fairly tight period in which it has to refinance its debt, but nothing like the tap dance Bank of Ireland must be doing. Bank of Ireland, generally believed to be the more robust of the two institutions due to its less-bad portfolio of property and construction loans, is dealing with an average maturing of just a few months on its outstanding bonds.

The other key element – and again the Irish banks are in trouble here – is the actual amount that has to be refinanced within those tight rollover periods. Bank of Ireland's refinancing requirements in the next three years are nearly four times its total debt issuance for the entire period 2000-07, when the good times were really rolling. AIB has to shift about 250% of that eight-year debt load in the same time frame.

To avoid simply repeating this position, both banks will have to "term out" their bonds – in other words, issue bonds with longer maturities.

But this will have to be done at higher prices, especially as they will be competing with banks in less dire straits: the more they need, the more they will be forced to pay, much like Ireland's own deficit funding has been over the last year as the government has been forced to tap the capital markets to make up a huge budget shortfall.

High volumes of refinancing relative to institutional size mean high prices, and Irish banks will also pay a price for perceived risk – both at the bank level and at the country level. According to Barclays, Irish banks will have to pay on average 1% more on their bond coupons simply for being Irish. All of this combined will cost Bank of Ireland an extra €173m and AIB €137m in 2012, eating away at already shaky profits.

As if that weren't enough, the ECB is gradually withdrawing the funding support it has liberally advanced to banks through the crisis as national economies and banking systems slowly return to something resembling normal. While the Irish banking system accounts for just over 5% of total euro-zone bank assets, it has used nearly 15% of available ECB bank funding, making it the most over-reliant set of banks in Europe.

As the central bank unwinds its €875bn in support, every bank that availed of its help will be looking to replace the money by placing debt with new buyers. Here's where there is a glimmer of good news. Bank of Ireland has reduced its dependence on central banks from €17bn in March to €10bn in September. The bank also successfully raised €1.5bn in September in a covered bond issue outside the government guarantee – a major milestone for the sector. EBS has done the same.

The supposed ace in the hole for the Irish banks, of course, is Nama. All going to plan, the €54bn in treasury bonds the banks will receive for their bad assets can be placed with third-parties for cash. The questions remain though: how long, how large and how much?