By Anthony Burke Boylan -- In what seems counterintuitive to many consumers feeling the economic and credit pinch, CEOs and analysts can’t wait to give bank industry bailout money BACK to the federal government.

The financial industry for the most part has found the government oversight and public flogging that came with their checks – some large, some massive – too onerous for its business model.  And in the case of banks like Northern Trust Corp. (NTRS) there is good reason.

Not all the banks have so good a case, though, in the rush to return about $700 billion in federal funds issued under the Troubled Asset Relief Program.

A stampede into equity markets by banks from your local community lender to the nation’s largest retail names, however, could put pressure on equity markets  and deflate the value of new issuances to the point where capital raising becomes a venture so expensive bankers might long for the watchful eye of Uncle Sam and his taxpayers.

“The question for banks is: How do you raise capital to get out of TARP, or if you are not in TARP to raise the capital you need?’’ said Bert Ely, a noted banking analyst in an exclusive conversation with Capital Insight Partners.

“That’s already a problem. A lot of banks are finding the market is not very interested,’’ Ely said. “Take a look at where bank stocks sell. It’s going to be expensive and it’s going to mean a lot of dilution for shareholders.’’

After gradually improving recently, banks stocks showed weakness again this week on earnings news by Bank of America (BAC). While the largest bank in the nation turned in better-than-expected quarterly results – net profit of $4.2 billion – it also took a $13.4 billion provision for loan losses.

The bank’s stock price tumbled 16.6%.

Capital One (COF) also saw a 16.3% decline after Goldman Sachs downgraded its stock rating.

U.S. Bancorp (USB) added $1.32 billion to loss reserves and expects similar additions in the next two quarters. And that bank’s CEO is one of the industry leaders in the give-the-money-back movement.

Sure there are individual success stories by smaller banks and most experts expect the industry to recover … someday. Positive comments about overall capital health in the industry from Treasury Secretary Tim Geithner have helped a bit, too.

Still, the industry as a whole still shows stock prices that not only are weak, but volatile. A rush to the equity markets likely would make them weaker and more volatile.

The KBW bank index (BKX) has bounced up and down this week, buffeted by news that alternated good and bad. While it’s up from the dismal depths it had hit, it stands in the mid 30s, slightly more than a third of its 52-week high and only a fraction of its historical peak.

Investors aren’t expected to even dip their toes in the banking waters until the results of stress tests on 19 of the nation’s largest institutions. That will be a barometer of just how much capital the industry has – or doesn’t have – and how close it is to stability.

And even the most optimistic of bank industry followers will admit there are more bumps in the road to come; mergers, failures and maybe even government assistance.

So is all this talk of sending the government’s money back just a lot of tough talk for investors, depositors and industry peers? And will we really see a wave of checks being sent to the government as promised?

Or will bank executives begin to discover life with government investment isn’t as bad as they thought once they really digest the cost of capital?

It’s not even clear yet what course most banks will have to follow to give the money back. Geithner has made clear his intention that banks will have to meet stringent capital standards and the industry will have to be on better footing before he lays out when and how banks can begin repayment.

“I understand the frustrations on the part of banks,’’ Ely said. “But this thing isn’t over by a long shot.

“In fact, I’d say we are just about due for another round of rhetoric and demagoguery.’’

Anthony Burke Boylan is an advisor to Capital Insight. Reach him at 312-953-1649.