Banks eager to repay government bailout funds and those looking to plug capital holes now that the stress tests are over have been flooding the market with stock offerings as a way to raise capital.

And apparently, institutional investors, including mutual funds, pension funds and asset managers, want in. But it could also depend on the bank.

"Demand seems huge," says Tim Ghriskey, the chief investment officer for Solaris Asset Management.

"I don't know if it's there for absolutely every bank," Ghriskey says, "but I think there is a general feeling that the market has bottomed, that the financial crisis is being solved and that there is value here in these names."

At least four of the nine banks that were told they did not need to raise additional capital according to the Federal Reserve's stress test results said in the past few days that they were commencing stock offerings in order to repurchase the preferred stock and warrants issued to the Treasury Department under Treasury's Troubled Asset Relief Program.

The Bank of New York Mellon ( BK - Get Report) boosted its original offering from $1 billion to $1.2 billion on Tuesday.

After announcing late Monday that it planned a common stock offering in which the proceeds would be used to repay TARP, the trust bank priced 42 million shares of common stock at $28.75 a share. Shares closed Monday at $29.55.

USBancorp ( USB - Get Report) on Tuesday said it expects to raise $3.5 billion in stock and bond offerings (before expenses and fees and before the exercise of its overallotment). It sold 139 million shares of common stock at $18 a share. The stock closed at $18.50 on Monday.

The bank also priced a public offering of $1 billion worth of medium-term notes that are not guaranteed by the Federal Deposit Insurance Corp., it said. The debt offering is a requirement for banks looking to repay TARP funds. Companies must show that they can raise debt without the assistance of the government.

Regional bank BB&T ( BBT - Get Report) and credit card-heavy firm Capital One ( COF - Get Report) also said they were planning stock offerings in order to repay TARP.

Other banks are also looking to stock offerings as a way after being told by the government to boost their capital levels in order to protect against loan losses.

Bank of America ( BAC - Get Report) said it plans to sell 1.25 billion shares through a so-called at-the-market transaction, which enables the giant lender to issue new common stock from time to time, when the market is most receptive, according to Dow Jones. The Charlotte, N.C., bank was told it needed roughly $34 billion in new capital by regulators to cover losses in an extreme scenario.

KeyCorp ( KEY - Get Report) said on Monday that it plans to sell $750 million of common stock to partially plug the hole for its $1.8 billion capital deficiency via the government's stress test.

E*Trade Financial ( ETFC - Get Report), a company that didn't undergo an official stress test but which banking regulators have said needed to raise capital "quickly," announced last week that it plans to sell $150 million worth of shares as one way to get funding.

The offerings follow in the footsteps of hugely successful offerings from Wells Fargo ( WFC - Get Report) and Morgan Stanley ( MS - Get Report) last week, which were told that they needed to plug holes in their capital levels.

Stress Test

Wells Fargo said it sold $8.6 billion worth of stock. It originally expected to raise $6 billion on the open market, when it first announced the offering on Thursday.

"Our common stock offering was heavily oversubscribed, reflecting, in our view, confidence on the part of both institutional and retail investors in Wells Fargo's business model and financial strength," CFO Howard Atkins said.

The San Francisco-based company was told by regulators that it needed to add a total of $13.7 billion to its overall Tier 1 capital base based on results from the stress test, primarily in relation to its acquisition of Wachovia.

Morgan Stanley originally said that it planned to raise $2 billion worth of equity and another $3 billion in non-Federal Deposit Insurance backed notes. The New York investment bank priced 124 million shares at $24 a share that is expected to raise $3.5 billion. In addition, it priced a public offering of $4 billion in aggregate principal amount of senior notes, the firm said.

Morgan Stanley needed to raise $1.8 billion as deemed by regulators and said it planned to repay TARP funds.

"These offerings are a great way to get instant exposure -- usually at a discount," Ghriskey says. Solaris, which has $2 billion in assets under management, currently owns shares of Morgan Stanley and First Horizon ( FHN - Get Report).

Make no mistake though, the offerings will be extremely dilutive to existing shareholders, observers say. Banks shares were falling this week as a result of the offerings.

But not all banks will find investors are clamoring at their doors.

"If you're a management team of a regional bank that may not be well regarded because you've led the company over the last five years into the mess and you've got excessive loan concentrations, I think it's going to be a challenge for those types of names to raise capital," says Gerard Cassidy, managing director of bank equity research at RBC Capital Markets.

As the offerings keep coming, investors are going to be increasingly "price sensitive," Cassidy says.

There will "probably be a big difference between the first deal and the last deal," he adds. Cassidy was referring to Goldman Sachs' ( GS) common stock offering last month in which it sold $5 billion worth of shares at $123 a share.

Goldman had reiterated during first-quarter earnings last month that it planned to repay its TARP funds. Regulators found via the stress test that the company did not need to raise more capital.

Still, retail investors should do their homework before attempting to invest in bank stocks promoting offerings.

Gary Townsend, president and CEO of Hill-Townsend Capital, a private investment firm that invests in bank stocks, says that investors should look for attractive geographies banks are located in, low tangible book values, less loan exposure to troubled loans, such as commercial real estate, and good management expertise.

While banks are likely to be impacted by credit costs at least in the near term, some banks will have great earnings potential once that passes, he says.

"It's going to be now a stock-picker's market," RBC's Cassidy says. "You're going to have to avoid the banks that are the greatest loan risks. Investors also have to be long term investors. The volatility of bank stocks in the last six months is eventually going to normalize. For trader-types and flippers and stuff -- that game is over."

But Ghriskey says retail investors, unless they are able to do in-depth research and basically become financial experts, should pick mutual funds focused on the financial sector or a basket of finds. "It's really tough right now to know which horse to play," he says.