After Corus, who's next to fail thanks to commercial real estate woes?

Friday the FDIC closed Corus Bank, which had $7 billion in assets and $3.9 billion in condominium construction loans.

What tanked Corus -- and what will hammer other banks -- is a rising inability of real estate companies to pay back their loans. How bad is it? Loans that borrowers have stopped repaying are up to 4.48 percent of total loans, from 2.09 percent in 2008. And banks are not setting aside reserves to match 100 percent of those non-performing assets (NPAs) the way analysts think they should.

The low reserves-to-NPA ratio is a sign of bad things to come -- particularly if it's trending down.

By that measure, three big banks are suffering from an overload of bad commercial loans. For example, at Suntrust (STI) -- that ratio has tumbled from 70 percent in 2008 to 53 percent in 2009. Comerica (CMA)'s reserves-to-NPA ratio has fallen to 78 percent from 91 percent in 2008, and Zions (ZION) reserves-to-NPA fell to 65 percent in 2009 from 79 percent last year.

Corus' demise should not have come as a shock. Last July I posted about the dangers to the banking industry of $1.8 trillion worth of commercial loans -- most of which are in made to finance construction of real estate. Two weeks ago, I posted that the $6.7 trillion in commercial real estate (CRE) loans -- and the related commercial mortgage-backed securities (CMBS) industry -- could be the next big shoe to drop.

Taxpayers are fortunate that Corus was able to find a buyer. But it is going to be increasingly difficult to sustain the illusion that the economy is in a recovery as commercial real estate woes worsen. If bigger banks find themselves unable to survive the capital crunch that comes along with the snowballing of bad CRE loans, we may find ourselves in a double dip of trouble.

Are we ready?

Peter Cohan is amanagement consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.

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