Don't be surprised to see large regional banks making acquisitions in the banking sector this year, as healthier banks are pushed to scoop up weaker competitors.

The federal government is expected to complete stress tests on the 19 banks with at least $100 billion in assets later this month. Some banks are expected to receive new cash infusions from the government or private sources after the tests, much of which will be needed to cushion the companies against rising losses. But analysts and observers also believe this recapitalization effort may be a pre-emptive move encouraged by regulators to position some banks to make acquisitions, as weaker competitors go under.

Large regional banks such as BB&T ( BBT) , SunTrust ( STI), KeyCorp ( KEY), US Bancorp ( USB) and other banks with market caps between $2 billion and $20 billion are the "logical consolidators," says Robert Patten, an analyst at Morgan Keegan.

"While these banks may not need the capital because of credit, our view is that the regulators may need these banks to take the capital in order to take care of the consolidation, which must happen," Patten says. " Those consolidators will likely get flushed with capital -- whether they want it or not."

Large banks currently have their hands full digesting recent acquisitions that for the most part were either forced, federally assisted or both.

The other problem is that several large banks are coming dangerously close to hitting the national 10% deposit market share limit, which will make it hard for the companies to acquire any significant-sized bank holding company.

JPMorgan Chase ( JPM) bought failed Washington Mutual in September from the Federal Deposit Insurance Corp. for $1.9 billion, just six months after it purchased Bear Stearns in a government-assisted deal. Bank of America ( BAC) is struggling to digest Merrill Lynch and also bought Countrywide Financial last summer.

Wells Fargo ( WFC) trumped Citigroup's ( C) already agreed-upon deal for Wachovia, ultimately winning a legal battle for the rights to the Charlotte, N.C. company.

Acquisitions also have made regionals like PNC Financial Services ( PNC) unlikely to be a buyer, as it digests its deal for National City and works to rebuild its capital levels.

PNC completed the Nat City deal last year, paying close to $6 billion for the bank as it received a $7.6 billion preferred equity investment from the government through the Troubled Asset Relief Program. PNC did not have a loss-sharing agreement with the government, despite Nat City's troubled balance sheet. On the other hand, US Bancorp bought Downey Savings and Loan and PFF Bank & Trust late last year with help from the government.

Other banks are also reluctant to take on significant deals these days, regardless of their credit standpoint, because they don't want their current capital levels to take even further hits.

Still, the cheap prices that healthy banks could acquire franchises at these days is almost too good to pass up.

"Every bank has that wish list," says Oppenheimer analyst Terry McEvoy, adding the companies would have had to pay a premium to acquire its targets before the credit crunch. These days, banks are more apt to take only the attractive deposits and branches of those firms and leave the assets that pose a credit risk for the government to deal with, he says.

"I think we are going to see buyers being very disciplined and patiently waiting until a target is either on the brink of failure or just in a very distressed situation where they are forced to talk to someone who has a stronger balance sheet," McEvoy says.

At year-end, 252 insured institutions with combined assets of $159 billion were on the FDIC's "Problem List," the agency said.

For all of 2008, there were 292 bank mergers, 25 bank failures and 5 federally assisted transactions, the largest number of failed and assisted institutions in a year since 1993, according to the FDIC.

Patten believes there are between 200 and 500 banks that need to be acquired. The list includes primarily small banks with limited access to capital and limited diversification of revenue streams, holding real estate loans and properties they are unable to unload. The Federal Reserve or FDIC do not have the resources to take over those banks, he says.

Kevin Reynolds, an analyst at Wunderlich Securities, says that more than 50 problem banks are headquartered in the Atlanta market alone.

Like Florida, it is one of the worst-hit markets because of the construction loans that many banks doled out during the residential housing boom and are now suffering from the market meltdown.

The Atlanta market is prime picking for regionals like SunTrust, which is headquartered there, and other Southern regional banks like Birmingham, Ala.-based Regions Financial ( RF).

"Atlanta, as a single market, has some of the greatest credit risk and the greatest number of banks that have failed," Reynolds says, who covers Southern mid-cap and small banks, made similar statements regarding M&A. "You're going to see a lot of forced sales and or receiverships in Atlanta and Florida."

Just last week, Atlanta-based Omni National Bank was closed by the Office of the Comptroller of the Currency. SunTrust acquired Omni's $400 million in insured deposits from the FDIC and six branches located across the country.

It's also possible that regulators will force more mergers of equals among the large regional banks if the outcomes of the stress tests are negative, says Paul Miller, an analyst at Friedman, Billings, Ramsey, who covers large and mid-cap banking companies.

Miller says that most of the companies that he covers are "very weak" on capital.

He wrote in a recent note that investors should avoid purchasing shares of PNC until the Pittsburgh-based company can rebuild its capital levels.

"PNC's credit quality is better than that of its peers. It will be a survivor, but its future capital structure is nearly impossible to predict," Miller wrote. "Given the significant risk of dilution, we would avoid the shares until the company is better capitalized and its ability to build capital through earnings is stronger."

Regional banks aside for a moment, there are other financial firms that could throw their hats in the mix to make an acquisition.

After the Lehman Brothers failure and BofA-Merrill Lynch merger agreement last fall, the remaining two securities firms, Morgan Stanley ( MS) and Goldman Sachs ( GS), became bank holding companies.

Morgan Stanley has openly said it is looking for ways to build its deposit base, inferring that it is interested in buying a bank.

Smaller banks are also likely to be acquirers this year.

Nashville, Tenn.-based Pinnacle Financial ( PNFP) could be a buyer, Reynolds says.

People's United Financial ( PBCT) of Bridgeport, Conn. could also be in the market for an acquisition.

"The list of the bigger guys doing deals is smaller and shorter," says Anton Schutz, president of Mendon Capital Advisors and the fund manager to Burnham Financial Services. His firm owns shares of People's. "You go into small cap and micro-cap land -- there are guys with big capital ratios, so you could certainly see lots of deals."

Still, some big banks like JPMorgan Chase or Wells Fargo, two of the better names in the banking sector throughout the financial crisis, could strike again.

"From a scale perspective, what else is out there that is so colossal to be hard for them? They don't have to consolidate it for a while," Schutz says. "I think CEO Jamie Dimon would do it if it was incredibly attractive."

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