WASHINGTON — A plan to raise capital standards at both small and large banks could potentially hamper the legislative effort to break up the biggest institutions, industry observers warned after the unauthorized leak of draft legislation late last week.

The draft bill, authored by Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., would scrap proposed Basel III requirements and replace them with a 10% capital standard for all institutions, along with an additional 5% for institutions with more than $400 billion of assets. While many small banks have been supportive of the effort to break up the big banks, they are likely to oppose the legislation if such a provision is included in the final bill, observers said.

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