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By: Jeff Cox, CNBC.com | 17 Jan 2009 | 10:32 AM ET
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Not even a fresh influx of government money could reverse investor sentiment regarding the banking industry.

While news that Bank of America [BAC  Loading...      ()   ] was getting $20 billion in bailout funding to prop up its balance sheet initially cheered investors, the mood quickly turned as it became apparent that it might not be enough.

And BofA's troubles were merely reflecting the rest of the sector's woes. European bank Barclays [BCS  Loading...      ()   ] lost about a third of its stock value, HSBC [HBC  Loading...      ()   ] continued to come under pressure, and Citigroup [C  Loading...      ()   ] continued its slide even as the company desperately sought to assure the market that it was adjusting its model to meet future needs.

"People are afraid to trust anything," says Kathy Boyle, president of Chapin Hill Advisors in New York. "You've got a lot of issues here that aren't going away quickly and they're going to have to absorbed quickly. That's going to translate into losses for these institutions."

Like many other financial advisers, Boyle is steering her clients mostly clear of banks, except for a play on the ProShares Ultra Financials [UYG  Loading...      ()   ] exchange-traded fund. The ETF is diversified enough to mitigate risk and also plays double any moves higher in the Dow Jones U.S. Financials Index.

Otherwise, the banks are being treated as taboo.

From an investors standpoint, there will be little incentive to jump back into the stocks of the nation's big banks.

"I don't know where the end is going to be," Boyle says. "I don't know where it's going to turn around, but it's going to take a long time before these banks turn profitable again. You're going to see more mergers and more creative efforts to try to stir business up."

While some analysts were taking a wait-and-see approach on BofA's problems, investors are dumping the stock in droves.

Unless the pendulum swings quickly, earnings could well be a precursor to a blistering round of bank closings.

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"There's certainly going to be more bank failures in 2009 as the economic backdrop continues to deteriorate and the smaller banks start to feel the pain," said Christopher Mustascio, managing director at Stifel Nicolaus. "Now you've got a full-fledged recession...Some of these banks are not going to be able to deal with that, and you're going to see failures."

The $700 billion Troubled Asset Relief Program, which banks can access to bolster their capital positions, will help ease some of the damage as will Federal Reserve moves to ease monetary policy. The liquidity moves of 2008 have lagging effects that should take root in the coming months.

But banks will fail, and at numbers large enough to cause alarm.

"I do think some of the actions taken by both the Fed and Treasury will limit the failure, especially at the larger banks, that we have seen in the late '80s or early '90s," Mustascio said. "But to think we're not going to see more failures in 2009 is probably naive."

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