WASHINGTON — A proposal by regulators to revamp the way banks must measure risk on certain assets is alarming many community bankers, who argue it will raise capital requirements, increase compliance costs and curb lending.

For the most part, small banks had expected the majority of the Basel III plan, which dictates the quality and quantity of capital institutions must hold, to apply to them, including a requirement that they hold 7% in common Tier 1 capital.

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