A Financial Times report that US regulators are telling banks to hold onto their cash until the economy is further along on the path to recovery is hardly surprising.

How can banks instead spend it on stock buybacks or dividend payments when the sector is still getting hit by woes in commercial real estate, which could lead to significant write-offs and a need to raise more equity capital.

In fact, they can’t. Losses related to commercial real estate now stand at $25 billion on a cumulative basis since the beginning of 2008, according to Fitch Ratings, which anticipates these losses will continue to trend higher in 2010.

In its US banking quarterly report for the fourth quarter released this week, the credit rating agency said it will pressure earnings in 2010 and 2011. Fitch has a negative rating outlook for the whole banking sector.

Of course, there are some who are pushing for banks to lend that cash, which at least will have the merit to stimulate spending and the economy.

Sheila Bair, head of the Federal Deposit Insurance Corporation, is one of them. “Clearly there was too much credit leading into this crisis, but I am concerned with it moving too far the other way,” she said this week in remarks to the National Association for Business Economics. In particular, she urged to expand small-business loans.

But more lending, coupled with more write-offs, could require more bailouts, especially if banks start becoming overly generous to shareholders at the same time.