'Fast Money' Recap: Sorting Out the Banking Crisis

The markets rallied Wednesday as the heads of the eight major banks in the country were grilled over their use of government bailout money.

The Dow Jones Industrial Average rose 50.65, or 0.64%, to 7,939.53, while the S&P 500 moved up 6.58, or 0.80%, to 833.74. The Nasdaq added 5.77, or 0.38%, to 1,530.50.

The panelists on CNBC's "Fast Money" TV show generally liked what they heard from the bank executives before the House Financial Services Committee.

Pete Najarian was particularly impressed with John Mack, the CEO of Morgan Stanley (MS Quote). Najarian said Mack's company is in a great cash position and hasn't used TARP money for dividends and compensation.

Jeff Terranova said the same can be said of Goldman Sachs (GS Quote) which has written down assets to levels that they can recover from.

Guy Adami noted the credit markets are improving without the government's help. As of January 2009, $78 billion of investment grade bonds were sold by companies that weren't helped by the government, he said.

Dylan Ratigan, the moderator of the show, asked Gerard Cassidy, a banking analyst with RBC Capital Markets, for his observations of the testimony.

Cassidy said he believes the capital markets business will improve before the credit lending business. In addition, he said all the major banks will need more equity capital, adding it will be interesting to see how they will fare with the proposed stress test in the second round of TARP funds.

According to Cassidy, bank stocks will go higher if the metrics in the stress test are based upon "realistic assumptions" and if the banks pass the test.