NEW YORK ( TheStreet) - The Federal Reserve's second round of stress testing is going to "propel forward' more consolidation in the banking industry, with large regional banks and foreign institutions the most likely buyers, according to Moody's Investor Services.

The Fed said in November that in order for banks to restore or raise dividends they will need to provide "comprehensive" capital plans by January 7. Banks will also need to undergo another round of stress testing to consider a range of economic, market and operational conditions, including severe scenarios, to estimate potential capital needs.

The same 19 banks that underwent the first stress tests in 2009 will be required to be tested. Of those names, 14 are commercial banks, and of that group only the largest, Bank of America ( BAC - Get Report), Citigroup ( C), JPMorgan Chase ( JPM - Get Report) and Wells Fargo ( WFC - Get Report), would be unlikely to receive approval to undertake any substantial acquisition.

Moody's says the results of the stress tests will lead to the commercial banks being segmented into tiers of financial strength, according to where they stand in terms of repayments to the U.S. Treasury Department's Troubled Asset Relief Program (TARP) and profitability.

Banks that have already repaid TARP funds are considered to be healthier than those that have yet to redeem the stock. Banks that still hold TARP funds could be considered sellers.

Moody's says that potential sellers with TARP will likely be allowed to repay so long as they raise significant capital to do so. However, banks that have not returned to profitability yet will unlikely receive approval to repay TARP.

"Any banks that are not approved to repay TARP could face a challenging environment," says Allen Tischler, Moody's Vice President and author of the report. "Furthermore, even banks that are approved to repay the investment could be more disposed to sell rather than undertake further dilutive capital raisings -- though they all have indicated their desire to remain independent."

On Monday, Huntington Bancshares ( HBAN - Get Report) and First Horizon National ( FHN - Get Report) announced capital raises in which the proceeds would be used to repurchasing preferred stock owned by the Treasury under the Troubled Asset Relief Program. Neither Huntington nor First Horizon is among the list of banks that will be required to undergo the stress tests.

More regional banks, like SunTrust Banks ( STI - Get Report), are likely awaiting regulatory approval in order to repay taxpayer funds.

SunTrust, along with Regions Financial ( RF - Get Report), are two large regional banks named as possible sellers.

However some buyers played down near-term bank M&A .

Tischler added that when a sizable deal is announced, Moody's will be examining the potential impact of the acquisition on the acquirer, "which will likely result in a greater number of acquisition-related rating reviews for possible downgrade than in the past."

-- Written by Laurie Kulikowski in New York.

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