) -- It seems the antidote to toxic assets hasn't yet been discovered.

In the 10 months since the Troubled Asset Relief Program was unveiled, there has been plenty of talk of troubled loans on bank balance sheets. Trillions of taxpayer dollars have been put on the line to address them. But they're still sitting on the books, in largely the same shape they were nearly a year ago when they first garnered public attention, according to a report Tuesday by the Congressional Oversight Panel.

TST Recommends

The report goes through a brief history of major events in the financial crisis: Former Treasury Secretary Henry Paulson's initial plan to buy the bad debt outright, why it didn't work, and what has happened since . It discusses the relaxation of accounting standards, the boondoggled

Public-Private Investment Program, the stress tests and the fact that bad loans kept going bad as conditions worsened.

But while the report sanctions what bank investors have long known, it doesn't say much that is new.

After going through all the problems and various types of solutions, it makes vague recommendations, some of which are already in place. It suggests that the government perform additional stress tests, implement a plan that works to kick start the market for troubled assets and require that banks disclose more about bad assets.

"Part of the financial crisis was triggered by uncertainty about the value of banks' loan and securities portfolios," notes the report. "Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem."

However, stress tests are performed all the time, both by banks and regulators, as economic and market conditions develop. They just aren't put on display, and were never supposed to be until the stress tests earlier this year made a public show of the results to calm the markets and the public.

And while the PPIP hasn't yet worked, it appears that the Treasury Department and FDIC would like it to. Banks and buyers simply haven't come to an agreement on pricing. Their minds may only meet out of necessity -- which isn't the case now, given eased accounting rules, government protection, and added scrutiny on would-be vulture investors.

The report accurately states that "troubled assets remain a substantial danger to the financial system," but the best route of protection remains unclear.

Perhaps the most significant statement in the report is the recommendation that regulators pay special attention to smaller banks. Those companies are more at risk than behemoth competitors like

Bank of America

(BAC) - Get Report


JPMorgan Chase

(JPM) - Get Report



(C) - Get Report


Wells Fargo

(WFC) - Get Report

, because they have higher exposure to commercial real estate and weaker ability to tap into the markets for fresh capital to cover loan losses.

Small banks are also more at risk because their loan books mainly consist of whole loans, which the PPIP has abandoned for the time being. The report estimates that the biggest 18 non-stress-tested banks, which have anywhere from $600 million to $100 billion in assets may need to raise $12 billion to $21 billion in fresh funds to cover bad loans, depending on how bad the economy gets.

The market is also aware of these realities, but regulators have not paid nearly as much attention to regional banks as it has to "too big to fail" banks. For instance, one factor not mentioned by the panel's report is that the Obama administration has essentially promised not to let the biggest banks to fail, including BofA, JPMorgan, Wells, Citi,

Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report


Bank of New York Mellon

(BK) - Get Report


State Street

(STT) - Get Report

. Such a pledge hasn't been extended to the


(KEY) - Get Report



(STI) - Get Report


Capital Ones

(COF) - Get Report


PNC Financials

(PNC) - Get Report


Fifth Thirds

(FITB) - Get Report

of the banking world.

Regulators' approach to smaller banks in trouble has been consolidation. The FDIC last month sketched out

proposed rules for private investors to step into the banking industry, and has fostered deals to allow regional competitors to grow through acquisitions.

The strategy may be best, but it would be helpful for investors to know how much protection smaller banks have from the government, and what the official regulatory strategy is, as the commercial real-estate bust comes to fruition. In the meantime, the issues that TARP and PPIP sought to address will persist until regulators issue a revised plan, or the market determines a clear path forward.

-- Written by Lauren Tara LaCapra in New York