UPDATE 2-Fed says U.S. banks slow to take commercial losses

(Adds Fed sources confirming report content, background)

WASHINGTON Oct 7 (Reuters) - The U.S. Federal Reserve told bank examiners last month that banks were slow to take losses on their commercial real estate loans that have suffered as property values sink.

The Wall Street Journal initially reported the U.S. central bank's concern and Fed sources on Wednesday confirmed a presentation was made on the topic to regulators, but described it as a training exercise for examiners about potential real estate issues.

The Journal report said the presentation was made on Sept. 29 by Fed analyst K.C. Conway, a senior real estate analyst at the Atlanta regional Fed bank.

It suggested that regulators were preparing for a rerun of housing-related losses that plagued many banks after the residential property bubble burst, the newspaper said.

Fed sources said the intent was to provide examiners who work directly with banks with training they might need to evaluate emerging risks.

The Fed has made no secret of its concern that commercial real estate poses a looming challenge for U.S. banks, which are still trying to repair the damage done to them by the collapse of the country's residential property market in 2007.

Fed Chairman Ben Bernanke last week called it a "serious problem," and Atlanta Fed President Dennis Lockhart separately warned it could undermine a hoped-for U.S. economic recovery.

A severe U.S. recession has dented demand for commercial real estate, while credit markets remain strained from the panic caused by massive losses on mortgage lending, making commercial property projects harder to finance.

The International Monetary Fund estimates in its latest Global Financial Stability Report that U.S. banks still have not written down roughly 40 percent, or $400 billion, of their overall bad loans.

Conway's report predicted commercial real-estate losses would reach roughly 45 percent next year, the Journal said and Fed sources separately confirmed.

According to the paper, the report said that the most "toxic" loans on bank books were interest-only loans, which get no benefit from amortization, since it requires borrowers to repay interest but no principal.

The report also stated that banks have been slow to absorb the losses on their loans, partly due to "capital preservation" concerns, both the Journal and Fed sources said.