The decline shouldn't have caught investors by surprise. Banks -- both those in need of capital and those deemed sound -- are scrambling for billions of dollars in cash by selling stock and converting preferred shares into common, diluting shareholders' equity in the process. Banks are also taking on new bonds and selling assets, moves that could impact their future earnings and ability to pay debt.

What does all this mean for investors? On the assumption that the banks aren't going bust, intrepid investors can find value in securities issued by financial firms in everything from bonds to more esoteric securities.

For bonds, buy senior debt For investors seeking less volatility, bonds could be an option. If the stress tests have done nothing else, they've confirmed the government's commitment to keeping the big banks afloat, although it might be presumptuous to assume that such support will last indefinitely. For this reason, Jason Graybill, a senior managing director at Carret Asset Management, recommends sticking with shorter-maturity bonds, say in the three- to four-year range. Yields can range from around 4% for Goldman Sachs (GS) debt to over 8% for a Citigroup (C) bond maturing in three years.

"From a risk-reward perspective, the bonds are still attractive," says Graybill, who recommends sticking with senior debt. "If you're going to invest in bonds, you want to be the senior-most creditor."

But the real action could be happening in the world of preferred shares. Until recently, preferreds have been volatile, as managers tried to figure out which banks would suspend dividends. [Citigroup did in fact suspend all preferred dividends.] Now investors are playing a different game: betting which preferred shares could be the target of exchange offers from banks that hope to convert the shares into common stock.

Citigroup, for one, is basically eliminating its preferred shares, converting them all to common. But other banks are likely to convert only some of their preferreds into common, and now investors are trying to figure out which banks will take the plunge -- and which classes of preferreds they will swap.

Alluring but risky: BofA's Series E Bank of America (BAC) has the biggest capital hole to fill. Despite its recent success in selling its stake in China Construction bank for $7.3 billion and its plans to sell 1.25 billion common shares to raise another $11 billion, BofA will need still more cash to fill its need for $33.9 billion.