NEW YORK ( TheStreet) -- Over the past month, the six biggest bank stocks have lost an average of 13%, seemingly on fears of what effect new, yet-to-be-determined regulations will have on their profitability.

Wells Fargo ( WFC) shares have lost the least value, with a decline of 8% since Jan. 8, closing at $26.43 on Monday. Morgan Stanley ( MS) was the loss leader, with an 18% decline, dropping to $26.60 by Monday's close. Citigroup ( C), Goldman Sachs ( GS), Bank of America ( BAC) and JPMorgan Chase ( JPM) were somewhere in between, all with double-digit declines.

The sell-off gained momentum roughly around the time JPMorgan announced fourth-quarter results on Jan. 15. Revenue was disappointing, and management comments about the road ahead weren't as sunny as some had hoped.

Then came the Obama plan, which turned into the Volcker rule, which hasn't yet been drafted and doesn't seem likely to get far beyond the Congressional hearings held last week.

Senate Banking Committee Chairman Chris Dodd (D., Conn.), who is trying to get a broad reform bill passed before he hangs up his legislative hat, grumbled about Obama's attempt to slip in the Volcker measure while he's having trouble passing the original proposal.

"It's not a movable feast," Dodd told Volcker after the hearings had ended, according to the New York Times. "It's adding to the problems of trying to get a bill done."

Frustrated with a lack of progress in moving the existing measure forward, Dodd decided last weekend to draft his own reform bill. No word yet on where that stands.

The Volcker proposal would break up big banks and limit their operations, while the broader reform bill seeks to monitor them and the financial markets more closely. Rochdale Securities analyst Richard Bove told clients this week that the Volcker measure is "unlikely to pass."

"The government needs these banks to help fund the budget deficit and to assist large American corporations in expanding globally," Bove asserted in a note on Monday.

Besides putting a lot of weight in reforms that haven't been drafted and may not be passed, the bank stock sell-off ignores a much-improved outlook for diversified firms' core business (lending). For instance, while the housing market continues to bumble along, the Obama administration is offering more incentives for banks to boost small business lending. Small businesses make up a large part of the workforce and GDP, and can help drive the economic recovery, if adequate capital is available. Some banks, like Wells Fargo, are taking note.

The sell-off also disregards trends that portend higher levels of trading activity and investment banking services, like restructuring and M&A. As the outlook has skewed more toward inflation and higher interest rates, investors will also be looking for better returns on their money. Wells Fargo said this week it is hiring 1,400 brokers to take advantage of that trend. Competitors with big advisory operations, like Bank of America, Goldman and Morgan Stanley, will also benefit.

Bears may point to the continuation of high credit costs and unemployment, which will probably keep dragging on earnings in the quarters ahead. Still, it seems likely that loan-losses have peaked, and recent declines in unemployment levels have been encouraging.

An industry-wide earnings analysis by KBW this week showed that fourth-quarter operating results climbed 1% on a quarterly basis, and 6% from the year-ago period -- the first sign of growth after 11 consecutive quarters of decline. A smaller portion of the industry -- 46% -- missed Wall Street expectations than has been the case in more than two years. (In the second quarter of 2007, 39% missed Street forecasts.)

If loan losses peaked in the third or fourth quarter -- as Bank of America executives have said, and Wall Street analysts have agreed with -- that means the lending market will only continue to improve, as the economy mends its wounds.

The market may continue to move downward, of course, and bank shareholders may still be spooked by regulatory specters. But Bove says the fear-driven sell-off is eerily similar to the one that occurred a year ago, ahead of the market's March lows. That, of course, was followed by a nine-month climb.

"That proved to be a wonderful buying opportunity," says Bove.

-- Written by Lauren Tara LaCapra in New York.

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