For the past five years, bank regulators have been working on a major overhaul of the rules governing how much capital big banks should be required to have to offset losses incurred while operating in ever more complex financial markets. At a congressional hearing yesterday, representatives of some smaller institutions expressed concern that they might be hurt even if the new rules do not directly apply to them.

The key point of the new rules, which probably would become final next year, is to tie the amount of required capital to the level of risk an institution incurs when it makes various types of loans or in other operations. The largest, internationally active banks -- probably only about 10 in the United States -- would be required to adopt new, sophisticated risk-management procedures. Another small tier of institutions might decide to do so, while all other smaller banks would not have their current rules change.

But some critics of the plan -- the work of the Basel Committee on Banking Supervision, named after Basel, Switzerland, where it and its parent institution, the Bank for International Settlements, are based -- told a House Financial Services subcommittee that it should be changed before its provisions are adopted by U.S. banking regulators such as the Federal Reserve and the Treasury's Office of the Comptroller of the Currency, which oversees national banks.

Sarah Moore, executive vice president of the Colonial BancGroup, a regional bank holding company with operations in six southern and western states, said the new rules would give "the largest U.S. banks an unwarranted competitive advantage over smaller institutions that compete against them." In addition, she said, it would make many financial institutions less willing to make commercial real estate loans.

David A. Spina, chairman of State Street Corp., a global financial services firm based in Boston that has no traditional lending or retail banking operations, said his firm would be placed at a disadvantage because of a rule that would for the first time require institutions to set aside capital to cover "operational risks." Those risks include failures of banks' internal processes, computer failures and inadequate supervision of rogue traders that have caused some institutions to fail.

Spina said that instead of setting explicit rules for operational risk capital, the issue should be left up to bank supervisors examining each institution.

Fed Vice Chairman Roger W. Ferguson Jr. told the committee that the concerns of Moore and Spina had been considered by those working on the new rules, and he doubted that in either case they would prove valid.

"As a bank supervisor and as a central banker, I have to say that we have not found the arguments of the operational risk skeptics to be convincing," Ferguson said.