"If you look across the banking system, commercial mortgageloans represent about 14% of banks' net loans and leases," Chandantells GlobeSt.com. However, he says, banks that have assets of $10billion or more typically see a less than 10% exposure rate tocommercial real estate. On the other hand, smaller institutionswith assets between $100 million and $1 billion see exposures ashigh as 30%.

And therein lies a very big problem and more pressing calls forpolicy interventions. "Some of these smaller institutions that havenot been the direct focus of policy interventions are seeing atremendous deterioration of commercial mortgage performance," saysChandan. "If default rates continue to rise in the way currenttrends suggest, and if low rates of recovery on exposures worsen,some institutions will be impacted in terms of their viability, notonly in their terms of their capacity to lend for commercial realestate, but also in their capacity to participate in themarket."

The handwriting is on the wall, according to data from federalbank regulators. During the second quarter of 2009, the FDIC issued151 regulatory orders. Nearly half of those orders were "cease anddesist," which often precede a bank's closure. Already this year,the FDIC says there have been 89 bank failures with assets totaling$91.6 billion.

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