Federal banking examiners continue to see sharp deterioration in the credit performance of commercial real estate loans held by U.S. banks, the Federal Reserve's associate director of banking and supervision said Monday.

In a speech before the House Financial Services Subcommittee on Oversight and Investigations, the Fed's Jon Greenlee noted that about 9% of commercial real estate loans in bank portfolios were considered delinquent at the end of the second quarter.

Banks at the end of that quarter held approximately $3.5 trillion in outstanding debt related to commercial real estate loans, he said.

Overall loan quality continued to deteriorate in the third quarter, with the largest 50 bank holding companies having nonperforming assets rise over 10%, Greenlee noted.

"When combined with job losses and lower consumer spending, the environment is very challenging for both large and small businesses," he said. Banks' problems are particularly poignant in states like Michigan, where asset quality indicators remain negative and 15% of banks are considered less than well capitalized.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.