The letter — co-signed by the Bank Policy Institute, Financial Services Forum, Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce — called for the agencies to rescind and re-propose the rule. It also marks the industry's latest, most forceful threat to agencies: If the rule is not delayed and significantly amended, regulators .

"The proposal assigns risk weights to bank assets and exposures generally based on no data or analysis; ignores voluminous data on loss experience held by the agencies and the private sector that could have informed an accurate calibration; fails to consider alternative, more accurate measures of risk, including some negotiated by agency staff at Basel; and ignores altogether a duplicative capital charge imposed by the Federal Reserve through its annual stress test," the letter said. "The only solution to its fatal substantive and procedural flaws is for the agencies to re-propose the rule"In a press statement accompanying the letter published Friday, Bank Policy Institute President and CEO Greg Baer said the Basel proposal "violates both the spirit and the letter of federal law," adding that the agencies, "by failing to show their work … have prevented meaningful comment not only by banks directly affected by the proposal but also by consumers, businesses and financial market participants who will see real costs as a result." 

The letter raises three specific concerns. First, the proposal would recalculate capital requirements for banking organizations with total assets of $100 billion or more under both the U.S. standardized approach and expanded risk-based approach, or ERBA, which introduces new standard risk measures for credit risk, operational risk, and credit valuation adjustment risk. Additionally, the proposal would use external models instead of banks current internal models to calculate the credit risk of risk-weighted assets. A new approach to market risk would also be introduced for both the U.S. standardized approach and the ERBA.

Another argument the industry made against the proposal was that such revisions will raise the price and lower the profitability of many of the assets they hold, which they have argued could hurt lending, though experts are mixed on the impact higher capital would have on lending and the broader economy. 

"Those risk weights drive the bank's overall capital requirement and its ability to compete for capital against other companies," the letter noted. "The proposal would substantially increase the regulatory costs of about $22 trillion in assets held by banks subject to the proposal."

The letter claimed regulators had selectively incorporated only what the industry sees as the most stringent aspects of the standards set by the Basel committee. The rule as proposed, they say, would be arbitrary and capricious — the very legal standard regularly used for mounting lawsuits to block agency rules on procedural grounds. 

The letter comes as the Bank Policy Institute — which represents the largest U.S. banks — has been gearing up for potential legal action and hired former Trump Labor Secretary, corporate litigator and an APA expert Eugene Scalia to advise its strategy. 

The comment period for the capital proposal closes January 16, and regulators led by Federal Reserve Vice Chair for Supervision Michael Barr say they are seriously considering each comment from interested parties. Amid industry pressure regulators have also conducted additional studies on the impact of the proposals which the agencies released for public comment earlier in the week. Industry experts expect the extensive process of reviewing, analyzing, and addressing commenters' concerns means regulators won't finalize the rule until 2025.