In its August report, the Congressional Oversight Panel (COP) looks at toxic assets and the risks they pose for US banks and the economy.  As the report points out, the Treasury's Public Private Investment Program (PPIP) was designed to root out both "troubled securities" and "troubled loans."  COP members appear to be concerned that the trouble loans portion of the program--administered by the FDIC--was postponed as the FDIC stated "that the banks' recently demonstrated ability to access the capital markets has made a program to deal with troubled whole loans unnecessary at this time."  That becomes a problem if the economy worsens, and, the COP report states, small banks are especially at risk:

The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‟ troubled assets are generally whole loans, but Treasury‟s main program for removing troubled assets from banks‟ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans. The problem is compounded by the fact that banks smaller than those subjected to stress tests also hold greater concentrations of commercial real estate loans, which pose a potential threat of high defaults. Moreover, small banks have more difficulty accessing the capital markets than larger banks. Despite these difficulties, the adequacy of small banks‟ capital buffers has not been evaluated under the stress tests.

The below graph shows how much capital banks would need under two different scenarios for loan loss rates.  In each scenario, banks in the $1-100 billion (in assets) range suffer much greater capital shortfalls than the 18 large banks that went through the Treasury's stress tests.  

Read the full report here.  

Here is COP chair Elizabeth Warren explaining the report: