Failed commercial loans could leave U.S. towns and cities with thousands of empty buildings and cause still more bank failures, the Congressional Oversight Panel predicted Thursday.

Commercial property values have declined more than 40 percent in the last three years, the report said.

Small banks are particularly hard hit by this situation because they do the most small-business lending. The report blamed the crisis on lending policies that valued properties based on inflated prices and said banks failed to consider the possibility of reduced consumer demand from a severe recession.

The report concluded that these looming failures could further weaken the financial system and inhibit the flow of credit.

Source: The Associated Press, Daniel Wagner