Commercial Loans Next Bank Trouble Spot

Washington, DC, March 30, 2010--Treasury Secretary Timothy Geithner warned that mounting losses from commercial real estate loans will continue to be a problem for smaller U.S. banks.

"Commercial real estate's still going to be a problem for the country," Geithner said in an interview with CNBC. "But we can manage through this process."

While losses on mortgage loans hit banks at the beginning of the 2008 financial crisis, it is commercial and development loans that have brought dramatic losses for banks in recent months, Geithner said.

Loans for commercial projects like stores and office complexes are in trouble, as buildings sit vacant and builders default. Many midsize and regional banks hold large concentrations of those loans.

Sheila Bair, the head of the Federal Deposit Insurance Corp., has said that losses on commercial real estate loans are expected to be the primary cause of bank failures this year, which are likely to exceed the 140 collapses in 2009.