The news that Basel III will be requiring a surcharge on big banks in addition to already high capital ratios has hit hard, leaving the bank industry chafing and bent on fighting back.

Under the plan, Citigroup, JPMorgan, Bank of America, Deutsche Bank, HSBC, BNP Paribas, Royal Bank of Scotland and Barclays would end up with a surcharge of 2.5 percent--and have to maintain core tier one capital ratios of 9.5 per cent--according to the Financial Times. The likes of Goldman Sachs, Morgan Stanley, UBS and Credit Suisse, face a surcharge of 2 percent, and another 10 to 15 banks would face a surcharge ranging from 0.5 percent to 2 percent.

In some ways, the battle is just now heating up. Regulators are expected to gather in Switzerland later this week, and we'll see if the trial balloon is still aloft at the end. Lobbyists are mounting a ferocious battle, amid lots of criticism that the list of SIFIs needs to be tweaked and the criteria rethought. JPMorgan and other U.S. banks have waged an effort--with surprising success--to enlist U.S. legislators and regulators to help them beat down an surcharges on top of the capital ratios.

There message is that, at some point, additional capital requirements will backfire and start crimping the banking industry and lending recovery. Some think it might also encourage risky behavior as banks will be even under more pressure to generate returns. It could be worse. Some national regulators are going even farther. Switzerland, for example, plans to require a capital ratio of 19 percent on UBS and Credit Suisse.

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