The latest report from the TARP Congressional Oversight Panel says that things may feel relatively stable right now on the commercial real-estate front now, but a time bomb primed to explode in 2011 will affect “every American.”

“Over the next few years, a wave of commercial real estate loan failures could threaten America’s already-weakened financial system,” the report says.

At special risk are the nation’s smaller and mid-sized banks, gave loans to local property buyers and developers but were never subjected to any stress tests.

The TARP panel fears “that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.

“Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms,” its report says.

“Nearly half of these loans are ‘underwater’ … commercial property values have fallen more than 40 percent since 2007 … the largest losses are projected for 2011 and beyond; losses at banks could be as high as $200-$300 billion,” the report concludes.

Small and medium-sized financial institutions are under pressure that will put a damper on credit availability in the U.S. economy, a top Federal Reserve official told The Wall Street Journal.

"Loan losses in commercial real estate and consumer and mortgage loans seem likely to continue to pressure smaller banks for some time to come," which means "credit availability to households and small businesses will still be curtailed," Federal Reserve Bank of New York President William Dudley said.