Oct. 18--Now that fears of a global financial meltdown have faded, many on Wall Street have returned to one of their favorite pastimes: cheerleading bank stocks.

In jargon reminiscent of the creative "pro forma" accounting (in which extraordinary expenses were made to vanish) era of the late 1990s, analysts are now commonly referring to "normalized earnings" in their bank research reports. By "normalized," they mean profits stripped of all those messy loan losses and multibillion-dollar, reserve-building charges that brought bank stocks to their knees a year ago.

Last year's horror show seems forgotten. The Standard & Poor's 500 financial index, which measures the stock performance of the nation's largest publicly traded banks, has surged 150 percent since the market bottomed on March 9.

Yet, is the worst really over for the banking sector? And is it a good idea to look past those loan portfolios and focus on the seemingly bright recovery ahead?

Barometers of banking's health

Investors looking for answers to those questions should watch what happens this Wednesday when Wells Fargo and U.S. Bancorp -- the nation's fourth- and sixth-largest banks, respectively -- release their third-quarter earnings. As more traditional banks, they are considered better barometers of the health of the banking sector -- and the Main Street economy -- than financial behemoths Bank of America, Citigroup and J.P. Morgan Chase, which released earnings last week.

A number of serious credit risks remain for both banks, any one of which could derail their recent rally, said several industry analysts. Wells Fargo's stock has nearly quadrupled since March 9, when it hit its lowest price in about 13 years. U.S. Bancorp has tripled since early March, when it traded at $8.06, its low of more than 14 years. "Maybe we shouldn't be looking at the 'normal' numbers," said Jaime Peters, a bank analyst at Morningstar. "Maybe the normal numbers are telling lies. There are so many reasons to be cautious right now."

To Peters, the big unanswered question is whether these banks have put aside enough cash to absorb whatever grim economic news the economy throws their way.

Even though both banks built their loan-loss reserves considerably over the past year, taking multibillion-dollar hits to their earnings, they still have lagged most of their big-bank peers, according to an analysis by SNL Research of Charlottesville, Va.

Wells Fargo and U.S. Bancorp rank 20th and 24th, respectively, among the nation's largest banks in the amount of reserves they have set aside as a percentage of their assets, according to SNL Research.