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The government stress test results of the 19 largest U.S. banks contained few surprises for analysts, who generally agreed the data appeared to be stringent enough to help restore confidence in the banking system.

The results also allowed analysts who are bullish on the banking sector to put their worst-case fears aside and refocus on prospects for "normalized" earnings. Even some bearish analysts conceded the tests showed banks can withstand a moderately severe economic scenario.

"We feared that the government's stress test would be too lenient or would attempt to build confidence in banks without real substance," said FBR Capital analyst Paul Miller, who has taken a negative stance on U.S. banks. "We now acknowledge that the loan loss expectations and earnings power assumptions in the test are credible if the unemployment rate peaks at 10.3%."

The Labor Department reported Friday morning that the rate of increase in unemployment began to decline in April compared to March, though the unemployment rate rose to 8.9% from 8.5%. Bank stocks on the KBW Bank Index opened 6% higher, with many of the stress test candidates showing even stronger gains, including Fifth Third Bancorp (FITB), which soared more than 45% in recent trading.

Bank stocks will now begin pricing in the "next phase of the crisis," Goldman Sachs Group Inc. (GS) analyst Richard Ramsden said, which said would focus on "diluted, normalized and discounted earnings."

The dilution part of Ramsden's forecast means that investors will be pricing bank stocks to account for the dilution of their required capital raising, plus potentially more capital raising for banks to repay the money they received from the government's Troubled Asset Relief Program.

Then investors will calculate when and at what level banks will begin to see "normalized" earnings growth again, Ramsden wrote in a note to clients. Assuming it will take three years to achieve normalized earnings, bank stocks on average imply a 10%-15% discount rate compared with their average annual return of 11% over several decades before the crisis began, he said.

The move to focus on normalized bank earnings is a "paradigm shift" in a market that not long ago was concerned about solvency, Bernstein analyst John McDonald said. McDonald cautioned investors against making too many assumptions about normalized earnings that are at least two years away. He said that regulators would likely impose new regulations for bank capital and leverage levels to prevent future financial crisis. That could limit banks' normalized earnings and return on equity potential, he said.

"While we see some room for bank stocks to move higher if the macro economic data continues to support this paradigm shift," investors should be careful about paying too much for "for normalized EPS that are likely to be at least two years away and subject to numerous assumptions about the economy, future regulation, and leverage," McDonald said.

While most mainstream sell-side analysts felt the tests were a success, some analysts outside Wall Street remained skeptical.

Institutional Risk Analytics, a research firm that assesses bank strength for large depositors, said banks' solvency problems were only temporarily solved - not through more capital or the stress tests, but by strong government support.

"Those banks which can end their dependence on federal guarantees will be the visible winners in the post stress test market," the firm said in its newsletter. "Valuations and spreads will reflect this divergence between zombies and viable private banks."

-By Ed Welsch, Dow Jones Newswires; 201-938-5244; edward.welsch@dowjones.com