Regulators updated the estimated cost of cleaning up hundreds of bank failures on Tuesday, saying the industry is seeing better earnings and a greater ability to raise capital.

The staff of the Federal Deposit Insurance Corp said it believes bank failures will cost the industry-backed insurance fund $60 billion between 2010 and 2014. Previously, the FDIC had estimated a cost of $60 billion between 2010 and 2013.

The FDIC staff warned, however, that spreading economic effects of the Gulf Coast oil spill and the European debt crisis could prompt the FDIC to raise its loss estimates.

The agency also approved a final rule to extend its Transaction Account Guarantee (TAG) program, a crisis-era guarantee that was designed to prevent business accounts from flooding to larger institutions from small banks.

The extension is for six months until the end of this year, with an option for an additional year extension.

Regarding the FDIC's insurance fund, the agency said it expects the fund to return to a positive balance in 2012. However, it said the agency has plenty of cash on hand to handle bank failures over the next five years.

The fund insures accounts up to $250,000.

The FDIC said it is sticking, for now, with its plan to maintain bank assessment rates at their current level through the end of this year. After that, the plan calls for a uniform 3 basis point increase in assessments rates, effective January 1, 2011.

(Reporting by Karey Wutkowski, editing by Gerald E. McCormick, Dave Zimmerman)