WASHINGTON — Those looking for green shoots in the banking industry will have to look elsewhere, top regulators said Wednesday, suggesting credit quality and institution failures will continue to be the norm for some time.

Officials from the Federal Reserve, Federal Deposit Insurance Corp., Comptroller of the Currency and other regulators said industry woes are expected to continue, exacerbated by ongoing and expected problems in the commercial real estate sector.

"Credit losses at banking organizations continued to rise through the second quarter of this year and banks face risks of sizable additional credit losses given the outlook for production and employment," Fed Governor Daniel Tarullo told the Senate Banking Committee.

FDIC Chairman Sheila Bair, whose agency is dealing with a growing number of failed banks, said the state of the industry is expected to continue to deteriorate.

"We expect the number of problem institutions to increase and bank failures to remain high for the next several quarters," Bair said in testimony before the panel.

The negative outlook offered by regulators could affect the high-stakes battle being waged in Washington over how best to overhaul regulation of the U.S. financial system. Lawmakers generally favor merging some or all of the federal banking regulators, creating a competition to retain oversight authority among regulators.

One area regulators are focused on is expected problems in the commercial real estate market. Comptroller of the Currency John Dugan, whose agency oversees large national banks, said the problems seen in construction and development portfolios could extend to the rest of the commercial real estate universe.

"Credit deterioration has spread to these assets as well, and trend lines are definitely worsening, but thus far the banking system has not experienced anywhere near the level of delinquency and loss" as with construction and development loans, he said. "Still, the signs are troubling."

Bair said regulators plan to work with banks to encourage lenders to work with borrowers to bridge the current tumult. Regulators will soon issue guidance encouraging commercial real estate loan workouts, echoing the efforts by the government to encourage lenders to work with residential mortgage borrowers.

"Prudent loan workouts are often in the best interest of financial institutions and borrowers, particularly during difficult economic circumstances and constrained credit availability," Bair said.

Tarullo said regulators continue to focus on capital levels, noting that even those banks with levels of capital that top minimum requirements may have to raise more capital and restrict dividends "for the foreseeable future."

Noting that capital ratios can be imperfect indicators of an institution's health, especially during a crisis, he said the Fed is conducting an assessment of internal processes of the largest U.S. banks to determine the effectiveness of capital adequacy measures. The central bank plans to work with the firms over the next year to bring their policies up to standard and potentially require them to raise more capital.

"In general, we believe that if firms develop more-rigorous internal processes for assessing capital adequacy that capture all the risks facing those firms — including under stress scenarios — and maintain adequate capital based on those processes, they will be in a better position to weather financial and economic shocks and thereby perform their role in the credit intermediation process," Tarullo said.

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