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Now it turns out that lots of banks will need money as more creditors go into default on their mortgages and credit cards. Some analysts have applied the same "stress test" to smaller banks that the government used on the big banks. Smaller banks are in for a difficult time, will require more capital to survive, if the economy continues to weaken.

One of the main reasons small banks (also known as community banks since they tend to serve a defined community) will need help is that their revenue sources are rather limited. They make home mortgages. They make commercial loans. They make construction loans. They issue credit cards. That's about it. In good times, that's all they need. In these times, anything but good, they're not enough.

Large banks, in contrast, have lots of revenue sources. They do all of the above but also have investment banking departments, brokerage services, foreign exchange, letters of credit, foreign branches and many more services. Many times these departments will be very profitable while the "normal" lending divisions are having trouble. There is a balance that helps the larger banks weather economic storms.

Almost every revenue category a community bank has is in trouble. In fact, some analysts believe the biggest hits are yet to come, in the form of defaults on construction loans, the ones that go to the local mall or office buildings. If those stop payments, the smaller banks will either close or need to raise more capital to shore up their balance sheets. One estimate was for 150 small banks to close over the next year if they can't raise more capital.

But that money will be difficult to find, for a number of reasons. As mentioned above, the big banks have already had their hands out and grabbed quite a bit of money. They may need to grab more, especially if their defaults continue to climb.

Another consideration: many small banks have been hit hard in this stock market, taking their stock prices well below book value. Any new stock they sell at these levels will dilute the shares that already exist. Current shareholders may dump their holdings if their bank starts to sell stock below book value, thereby putting more pressure on the stock's price, making it even harder to raise capital.

Small banks tend to have small floats. That is, the amount of stock that is available to trade is limited, illiquid. Sometimes only a few hundred shares will move the stock price by a large percentage just because there is no real interest in the stock. Institutions don't like investing in stocks that are illiquid; it makes it difficult to get out in critical times.

There are other industry groups out looking for capital. Homebuilders come immediately to mind. With housing in the absolute dumps, many of the builders will need to raise more capital to survive. Automobile companies need more money Ford Motor Co. (NYSE: F) just placed over 300 million shares and raised over $1.5 billion). General Motors (NYSE: GM), if it goes into bankruptcy, will no doubt come out of it looking for new capital. The need and list for capital is quite long.

As investors, this can be an ideal time to look to buy stocks that need equity. Many of the banks are selling at bargain prices, well below their book values. Of course, if loan defaults rise, that book value recedes quickly. But if the bank is breaking even or making money, investors can usually buy the new stock at very attractive valuations.

Money is king right now (it usually is at any time). Banks need it. Car companies need it. Builders need it. If you've got it, expect to see some real stock bargains offered over the next few months. But keep in mind what happened to Washington Mutual investors. The biggest thrift in the country raised millions of dollars through a private equity offering only months before it went out of business.

If you're tempted to buy these new issues, be sure you diversify over several companies and industries. The same fate surely awaits some of these firms which desperately need capital.