While investors seem to be breathing a sigh of relief now that the stress test results are finally out in the open, they might not want to throw caution to the wind in buying bank stocks.

It's worth keeping in mind that of the $75 billion the country's top financial institutions are required to raise, the vast majority -- $65 billion, or 87% -- is attributable to four firms:

Bank of America

(BAC) - Get Report

,

Wells Fargo

(WFC) - Get Report

,

General Motors'

(GM) - Get Report

GMAC finance arm and

Citigroup

(C) - Get Report

.

There has been a heated debate over whether the stress tests were "fair," with some banks calling the assumptions overly conservative, and some economists and analysts calling them too lenient. But while one can speculate endlessly about the economic horizon, the same metrics were applied to all 19 banks, and it's undeniable that the capital levels of those four institutions were weaker than the rest.

Nonetheless, by Friday morning each of their stocks were making gains, with BofA up 4.7% at $14.13, Wells rising 1.3% to $25.07, Citi gaining 6.3% at $4.05, and GM adding a penny at $1.61. Certainly, some investors were relieved that capital shortfalls were less than some had suspected, but there may be further troubles ahead for each of these firms, as well as the other 15 bank holding companies that underwent the Supervisory Capital Assessment Program.

But apart from core operations and capital infusions, behind-the-scenes issues also stand to affect certain stocks. Ahead of the stress test results, short positions in financial stocks increased 40%, according to

Bloomberg

data, leaving many short sellers rushing to cover positions, thereby accelerating the rally that took off as results trickled out.

Additionally, the potential for a massive conversion of preferred stock in BofA, Citi, Wells and other banks has provided a boon for

arbitrage

traders seeking profit opportunities in differentials between pricing of preferred and common shares. Those traders betting for or against a preferred conversion by going long on one type of security while shorting the other.

The strategy, which first became popular several months ago when Citi first began converting government shares into common, also stands to influence share prices outside of fundamentals.

For the time being, stronger share prices should help the banks raise fresh funds. But while the capital requirements were less than some had feared, Sandler O'Neill analyst R. Scott Siefers warns that investors should not infer any guarantee that the banks will not need even more funds than the stress tests determined.

"For the time being, euphoria over the actual release of the results may even continue to trump its consequences," Siefers says in a Friday report. "...But we caution investors against officially sounding the 'all clear' on the banking industry's health."

The worst-case scenario of the government's test was a 3.3% decline in real gross domestic product this year, and a 0.5% increase in 2010; unemployment averaging 8.9% this year and 10.3% next year; and home prices dropping 22% further in 2009, followed by a 7% decline in 2010. While those scenarios aren't good, many observers believed they could get worse.

"Despite these positives on the capital front, our concern over industry losses persists," says FBR analyst Paul Miller, who believes unemployment will exceed that level, and notes that real estate cycles typically take five to six years to work through. "Many market participants remain overly optimistic about the near-term earnings prospects of these companies," he adds.

Alex Pollock, former president and CEO of the Federal Home Loan Bank of Chicago, is also skeptical of the test results.

"It was a really nice piece of political theater, very well managed and carried out," says Pollock, who is now a fellow at the American Enterprise Institute. "We had a happy ending of the melodrama -- a nice stock market reaction."

On the other hand, the two banks that require the most capital tried to boost confidence in their financial strength by pointing out differences between the Fed's loan-loss scenarios and their own, and calling some of the assumptions flawed.

Bank of America said the

Federal Reserve's

income projections were too low, non-credit loss projections were too high, and loss assumptions were overall inaccurate because there was a standardized loss rate applied to all banks.

Similarly, Wells Fargo CFO Howard Atkins called pre-provision net revenue assumptions "excessively conservative," adding that the government is requiring the bank to hold capital for "a hypothetical net revenue scenario that is remote and inconsistent with the company's strong actual results so far in 2009, strong underlying earnings momentum, and the actions already taken by Wells Fargo to reduce Wachovia's revenue risk."

Banks that were found to need additional capital -- which also include

Regions Financial

(RF) - Get Report

,

SunTrust

(STI) - Get Report

,

KeyCorp

(KEY) - Get Report

,

Morgan Stanley

(MS) - Get Report

,

Fifth Third

(FITB) - Get Report

and

PNC Financial Services

(PNC) - Get Report

-- have until June 8 to outline a plan for coming up with the funds, and until Nov. 8 to implement the plan.

Bank of America CFO Joe Price said the firm plans to raise funds through a common stock offering, a conversion of private preferred stock into common shares, or both. It also plans sales of First Republic Bank and is considering the sale of Columbia Management and other businesses, as well as possible joint ventures.

Wells Fargo

priced a stock offering of $7.5 billion on Friday morning, and said it plans to generate additional capital internally through earnings. Siefers called that strategy "a bit riskier than we would have guessed," but added that "if anyone can generate the several billion dollars of excess capital internally, it is

Wells."

Citigroup

announced that it would raise $5.5 billion by converting some of the government's existing preferred stake into common equity, while GMAC did not outline specific plans.

Morgan Stanley

said it will raise $5 billion in stock and debt.

Even if each of the firms succeeds in raising capital in the short term, another issue looms large for banks: The enormous amount of distressed assets on their balance sheets.

Delinquencies, defaults and foreclosures have continued to mount, as home values have continued to slump. All of these factors combined with an impending lift on foreclosure moratoriums put in place temporarily at the start of the year, housing losses stand to escalate. Problems with consumer loans outside of residential real estate, as well as commercial real estate stand to make the situation worse as well.

Unfortunately, programs intended to kick start the market for these "toxic assets" have gotten off to a weak start. That's because the wide gap between the price at which hedge funds and other investors are willing to buy, and the one at which banks are willing to sell has not yet closed.

David Katz, a partner in the financial markets group of the law firm Orrick, Herrington & Sutcliffe, notes that banks may not have funds to take sufficient writedowns, incentivizing them to retain troubled assets instead.

While capitalization is certainly an issue, says Katz: "The bigger problem is that the problem assets are still there."