Converting the government’s preferred Troubled Asset Relief Program shares into common stock remains an option if stress tests determine that certain banks need more capital, a Treasury Department spokesperson said Monday.

Treasury took that very measure with Citigroup (C: 2.86, -0.09, -3.05%) earlier this year when Citi needed to shore up its capital reserves.

Common shares count directly as the best form of capital, tangible common equity, while the Treasury’s existing preferred shares count only in some levels of regulatory capital.

Analysts say this is a likely course of action for the government as, among other things, it would require no direct outlays of new TARP capital in a bank.

Consideration of this tactic comes as the government works to conduct “stress tests” on 19 top U.S. financial institutions such as Bank of America (BAC: 7.75, -0.32, -3.97%), Goldman Sachs (GS: 115.4, 0.017, 0.01%), JPMorgan Chase (JPM: 30.2682, 0.5182, 1.74%) and Wells Fargo (WFC: 17.53, 0.44, 2.57%) to determine how healthy their balance sheets are.

Congress set aside $700 billion for TARP last fall, and less than $150 billion of that remains unallocated — but this move would prevent the government from having to dip into its dwindling TARP resources.

Also, “it may be that some banks are in a situation where they say we could do just fine with the amount that we have,” said Wayne Abernathy, executive vice president at the American Bankers Association. “But given what kinds of stresses are revealed in the super stress test, having that option to convert to common as opposed to preferred would be helpful because of the way you deal with that.“

However, conversion of preferred shares into common would boost the government’s stake in a bank, possibly leading to greater government control over the institution.

Still Abernathy noted one more item on the plus side: “It creates a way for the government investment to get out,” he said. “it’s easier to withdraw when this is all done with a common share investment than it is with a preferred share…  because you can sell the common shares on the market.”