Proposed international rules on bank capital requirements could seriously undermine liquidity in the capital markets by making some business lines less attractive, investment banks have warned.

The Securities Industry Association, which represents more than 600 of the world's largest securities firms, has written to the committee drawing up the new rules warning that they "could have a detrimental impact on the liquidity of the capital markets".

Some investment banks say the new rules threaten to add billions of dollars of extra cost.

Those costs are likely to be passed on to clients.

Some bankers privately estimate the new rules could lead to their capital charge - the minimum amount of capital they are obliged to hold - rising by up to 60 per cent, making the profitability of some activities significantly less attractive.

The areas that would be most affected are over-the-counter derivatives and stock-lending, which form a large part of the banks' business.

The new rules are intended to create a more stable and efficient banking system around the world by better aligning the capital base that banks hold with the risks they take.

The SIA submission is the latest assault from the banking industry on the new regulatory regime, so-called Basel II. Last week, the British Bankers' Association and London InvestmentBanking Association said the new rules were too complex and prescriptive.

SIA - which includes Cazenove, Goldman Sachs and Citigroup - declined to say by how much the proposed rules, if passed, would increase the amount of capital they would be obliged to hold.

Mr Michael Alix, chairman of the risk management committee at SIA, said the new rules were "a step forward for commercial banks but we view them as a step back for investment banks".

The Basel II rules, upheld by central banks, are intended to align the amount of regulatory capital banks must hold against particular types of business closely with the risks involved. The existing rules impose a more arbitrary requirement.

Basel II will permit substantial capital reductions for banks with large retail businesses, including mortgage books, and those with good-quality large corporate loan books.

However, Mr Alix wrote to the Basel committee saying: "Our analysis, which is continuing, indicates that for many of our core activities Basel II prescribes capital requirements that appear to be excessive relative to risk and loss experience."