The slumping market for commercial real estate threatens to drag down regional banks as they struggle to collect on loans made against shopping centres and office buildings.

Seriously overdue loans against commercial developments have shot up dramatically in recent months, as delinquencies snowball on construction loans and mortgages for office buildings, malls and apartments.

That's bad for giants, but even worse for smaller banks, which stepped up lending to local developers and businesses as a way to stay afloat after the national institutions grabbed big-ticket consumer businesses such as home loans, credit cards and checking accounts.

That's especially true in California, where unemployment exceeds 11% and commercial real estate is being pummelled.

Los Angeles Times