A congressional watchdog panel today offered possible solutions to mounting commercial real estate losses, which threaten to jeopardize the banking system and stifle economic recovery, CNNMoney reported.

The Congressional Oversight Panel said in a report that more than half of the $1.4 trillion in commercial real estate loans that will require refinancing in the next four years exceed the value of the assets secured by the loans. It also said that expected losses could reach between $200 billion to $300 billion, endangering 3,000 small and mid-size banks with a lopsided share of commercial real estate assets on their books.

“We’re at a point where even as TARP (Troubled Asset Relief Program) is ramping down, another major challenge in our economy is ramping up,” said Elizabeth Warren, the oversight panel’s chairwoman. “We need to start now, before the system is on the brink of collapse, to figure out a plan.”

However, potential fixes are not expected to come easily.

One possible solution, the panel suggested, would be for the Treasury Department to “stress test” banks that are concentrated in commercial real estate loans. But last fall, Treasury Secretary Tim Geithner said at a congressional hearing that “it is not realistic or feasible” to examine such a large number of banks in a detailed way.

The oversight panel’s research found that 2,988 banks are heavily invested in commercial real estate loans, with more than three times their assets tied up in that segment.

Bank regulators could allow banks to extend underwater loans rather than requiring them to recognize losses. But the panel is concerned that such a strategy could impede a rebound in bank lending and that massive write-downs throughout the banking system could hinder lending and create a “negative bubble.”

The panel also suggested that the federal government should consider injecting capital into these small banks, buying their toxic assets or guaranteeing loans.

“There’s a need for a nuanced response,” Warren said, adding that banks should recognize some commercial real estate losses. But she added that regulators should monitor banks closely to ensure that losses don’t mushroom and pull down the larger economy.

“When commercial properties fail, the result is a downward spiral of economic contraction, as these are the same small banks that create jobs and boost economic activity,” she said.

Small bank failures “will intensify sharply over the next few years,” Warren said.