For months, insiders have known--and the financial press has occasionally pointed out--that a major crash in commercial real estate loan portfolios was on the way. For reasons having to do with business and finance cycles, CRE is always among the last sectors to feel the impact of recession and to emerge from a downturn once in its grip. Now a must-read analysis in this morning's Wall Street Journal makes clear how much this CRE dropoff will do to imperil the balance sheets of the country's small-to-midsized banks.

Maurice Tamman and David Enrich collected financial statements filed with the government for 940 not-too-big-to-fail bank holding companies around the U.S. They then applied the same stress-test benchmarks the federal government used on the 19 biggest banks. Their analysis focused on the so-called "worst case" scenario in the federal tests; remember, though, that Tim Geithner & co.'s worst case looks more and more like the most realistic possibility. As WSJ notes: "That worst-case hypothetical situation includes a 2010 unemployment rate of 10.3 percent, compared with 8.9 percent in April, and a two-year cumulative loss rate of as much as 12 percent on commercial real-estate loans and as much as 20 percent on credit cards."

The Journal analysis estimates that by the end of next year, these banks could lose $128 billion on bad CRE and commercial/industrial loans, $49 billion on mortgages, and another $28 billion on credit cards and other consumer lending. Tamman and Enrich conclude that this would leave 643 of the 940 banks facing balance sheet holes "large enough to reduce capital below the level considered comfortable by regulators."

In other words, broke.