The stock market rally we've seen has been nothing short of a godsend for TARP banks--and taxpayers. The surging appetite for bank equity is allowing banks large and small to raise capital much faster than the government had initially hoped. 

The 19 largest TARP banks face a deficit of $75 billion, according to the stress tests. Three huge banks--Citigroup, Bank of America and Wells Fargo--have raised or announced plans to raise nearly $30 billion. A handful of other banks and Capital One have also joined the offering parade. 

Part of this reflects the sizable discount that some institutions are offering. Morgan Stanley and Wells Fargo raised billions of dollars more than they had originally planned last week, which reflected the 11 percent discount to the previous close. Still, this sort of capital raising was deemed out of the questions just a month ago. And the window may in fact close fairly soon. The sense in the industry is that you've got to act fast. 

All this is good news for the government, as it appears unlikely that any of the TARP banks will ask the public for more money. It also appears unlikely that other banks, notably Bank of America, will follow in the footsteps of Citigroup and agree to a massive exchange offer that will give the government an uncomfortably large stake in the company. 

This is also good news for investment bankers. The stress tests have "unleashed a fee bonanza for Wall Street, with financial institutions set to earn more than $500 million in just a few weeks for helping rivals raise equity to plug capital shortfalls and repay federal aid," reports the Financial Times. That will give fee revenue a much needed boost; underwriting fees were near historic lows in the first quarter. Bond underwriting is also gathering steam. 

The big winners will likely be Morgan Stanley and Goldman Sachs, which will lay claim to much of the fee surge, as they are signed on as lead underwriters for several deals. Some of the fees will basically be intra-company transfers as banks such as Bank of America and Wells Fargo have hired in-house bankers for the fund-raising, the FT notes. - Jim