There's a lot of talk these days on Wall Street about hybrids. No, not fuel-efficient hybrid cars, but hybrid securities -- financial instruments that combine the best characteristics of stocks and bonds. This year, Wall Street is expecting a flood of hybrid offerings from U.S. companies, especially banks looking to refinance older, more costly debt. By some estimates, U.S. banks could sell up to $40 billion in hybrid securities in 2006, a more than fivefold increase over last year. Many expect other U.S. companies also to begin eyeing hybrids, but some worry that widespread use of the securities outside of the financial sector could spell danger for investors. To be sure, hybrid securities are not new. Any corporate bond that converts into stock is technically a hybrid security. But recent moves by regulators and credit rating agencies are making a new line of hybrids particularly attractive to banks looking for a cheaper way to finance stock buybacks and acquisitions. This new breed of hybrids, called "perpetual trust preferred securities,'' enables financial institutions to raise cash without impairing their credit ratings. That's because such offerings are treated by the rating agencies as equity -- even though they look a lot like bonds. In addition, the Federal Reserve recently determined that these new hybrid offerings can be used by banks to bulk up their Tier 1 regulatory capital. Tier 1 capital, sometimes referred to as core capital in the banking world, is a figure regulators keep a close eye because it's a measure of lender's ability to handle unforeseen losses. Already, Wachovia ( WB) and Washington Mutual ( WM) have cashed in on the hoopla surrounding this new line of hybrids, selling so far this year a combined $4.5 billion in securities to investors seeking higher-yielding investments. One of WaMu's hybrid offerings, for instance, yields a rich 7.25%, well above the current 4.5% payout on a 10-year Treasury note. With yields like that, it's no surprise there are plenty of hedge funds, mutual funds and pension plans eyeing bank-issued perpetual trust preferred hybrids.