Commercial losses top banks’ 2010 concerns

January 06, 2010 06:19PM

Commercial real estate losses are the biggest worry for the country’s banks this year, though the damage is expected to be concentrated amongst smaller lenders, according to a review by U.S. bank examiners. “Hundreds of banks will fail or will be resolved over the course of the cycle,” said Eugene Ludwig, former Comptroller of the Currency and Chairman of financial consulting firm Promontory Financial Group. While the financial system is unlikely to collapse under the weight of commercial real estate debt, loan defaults on malls, hotels and multi-family housing will slow the recovery process, analysts said, because the smaller lenders who made the bulk of these loans will be forced to tighten credit in order to absorb losses. Federal Reserve Chairman Ben Bernanke has said tight credit is a “formidable headwind” on the road to recovery. The Fed plans to complete its purchase of $1.43 trillion in mortgage-backed securities and residential mortgage debt by the end of March, though some analysts cautioned against an end to that program, especially if mortgage interest rates rise above 6 percent. [Bloomberg via Businessweek]