UPDATE 1-Bigger U.S. bank failures may be coming - FDIC

(Adds comments on FDIC planning to issue guidance, Basel II)

By John Poirier

WASHINGTON, June 5 (Reuters) - Future U.S. bank failures linked to the downturn in the real estate market may include "institutions of greater size" than in the recent past, Federal Deposit Insurance Corp Chairman Sheila Bair said on Thursday.

An increasing number of banks face high exposure to deteriorating conditions in commercial real estate and construction lending, Bair told a Senate Banking Committee hearing on the state of the banking industry.

"There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past," Bair said. "Uncertainties in today's economic environment continue to pose significant challenges for the banking industry, households, and bank regulators."

So far this year, four small U.S. banks with deposits insured by the FDIC have failed, up from three in 2007. The agency last week boosted its list of troubled banks to 90, which have a combined $26 billion in assets.

The FDIC, which has about $52.8 billion in its deposit insurance fund in the event of bank failures, has launched a review of its risk-assessment rates for larger banks to determine if they reflect current conditions, Bair said.

"The agency plans to examine, among other issues, whether changes in how long-term debt issuer ratings are used to determine premium rates can improve the assessment system's effectiveness in capturing risks posed by large institutions," she said.

The FDIC is also focusing on banks' liquidity risk management and investments in structured credit products.