The proposed Basel III regulations around bank risk levels breach the requirements of the Administrative Procedure Act (APA), according to the Bank Policy Institute (BPI).

The institute claimed the Basel III proposal “violates the law” and assigns risk weights to bank assets and exposures generally based on no data or analysis. It also argued that the proposal ignores data on loss experience held by the agencies and the private sector, which it said could have informed an accurate “calibration” of the planned rules.

It also criticized the proposal for failing to consider alternative, more accurate measures of risk, including some negotiated by agency staff at Basel, and ignoring altogether a duplicative capital charge imposed by the Federal Reserve through its annual stress test.

It said: “The only solution to its fatal substantive and procedural flaws is for the agencies to re-propose the rule.”

The BPI said the APA, which sets standards for federal agency rulemaking, requires regulators to formulate rules based on analysis and available evidence and to make that evidence public for review and comment.

Greg Baer, BPI president and CEO, said: “The proposed rule violates both the spirit and the letter of federal law. In most places it lacks evidence; in others, it ignores what evidence is available; it treats as a binding treaty an agreement negotiated by agency staff that was never reviewed by the Congress, yet even then arbitrarily departs from that agreement to impose still higher capital charges on US banks.”

Additionally, the BPI issued a joint statement with the American Bankers Association (ABA) and called on federal regulators to re-propose the regulations. It said the issues with the proposed rules were “pervasive and insurmountable”.

Among other issues, the associations said the proposal reduces the availability of credit for main street American businesses, weakens economic growth, punishes diversified banking business models and pushes financing to less stable nonbank intermediaries.

Rob Nichols, ABA president and CEO, said: “These proposed capital increases would do little to increase the safety and soundness of our banking system, which regulators and stress tests have confirmed is strong and already well-capitalized.

“Instead, at a critical moment for our economy, these changes would inflict serious harm on consumers and businesses in every community.”