Commercial property weighs on banks -Fed official

WASHINGTON Nov 30 (Reuters) - U.S. banks continue to face significant challenges, particularly from rising delinquencies in commercial real estate and commercial loans, a Federal Reserve official said on Monday.

"Credit losses at banking organizations continue to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment," said Jon Greenlee, associate director of the division of bank supervision and regulation.

Loan quality has deteriorated across many asset classes, he said, speaking before a House of Representatives Financial Services subcommittee hearing in Southfield, Michigan. A text of his testimony was made available in Washington.

Even as banks set aside funds to cover loan losses, poor loan quality, subpar earnings, and uncertainty about future conditions have raised questions about capital adequacy at some institutions, Greenlee said.

The level of delinquent commercial real estate loans in bank portfolios had almost doubled at the end of June, he said.

The Fed's Term-Asset Backed Securities Loan facility helped the first issuance of commercial mortgage backed securities backed by newly originated mortgages in almost 18 months Nov. 16, Greenlee said. (Reporting by Mark Felsenthal; Editing by Leslie Adler) ((mark.felsenthal@thomsonreuters.com; +1 202 898 8329; Reuters Messaging: mark.felsenthal.reuters.com@reuters.net))