Moody's sees increased bank consolidation following Fed's stress tests
Moody's Investors Service expects the Federal Reserve's stress tests on American banks to result in increase consolidation within the industry. The ratings agency foresees commercial banks divided into tiers based on financial strength according to profitability and where they stand in terms of repayments to the federal government under the Troubled Asset Relief Program, which is closely watched by analysts and investors and indicative of fiscal health. "Any banks that are not approved to repay TARP could face a challenging environment," according to 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." Moody's said large, regional banks that have already repaid TARP funds and foreign financial institutions seeking entry to the U.S. market most likely will be the buyers in the consolidation from the central bank's tests. Meanwhile, banks looking to sell will be those that still have TARP funds to repay but would need to "raise significant additional capital to do so, or may not be allowed to repay it because they have not returned to profitability," according to Moody's. About 151 banks have failed this year, on top of 140 bank failures last year. And the American Bankers Association recently reported the number of American lenders was 8,012 at the end of 2009, down from 9,182 in 2003. Write to Jason Philyaw.