Efforts to raise capital requirements on cross-border lending could backfire, reducing capital flows and increasing borrowing costs in emerging markets, bankers attending the annual meetings of the World Bank and International Monetary Fund warned Sunday.

At issue is a series of proposals by the Basel, Switzerland-based Committee on Banking Supervision, which has set global ground rules for bank capitalization since 1988. As part of a broad revision of existing practices, the committee has proposed that banks set aside capital against cross-border lending on the basis of sovereign risk assessments from credit rating agencies. (See related story on page 2.)

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