Rules on how banks will need to better capitalise their trading books, set out in a proposed revision to the Basel II accord on capital adequacy, will reduce the profitability of investment banks and could harm liquidity in the market, warn analysts and traders.

The rules, which were tabled by the Basel Committee on Banking Supervision on July 22 and are out for consultation until October, will increase the capital charges for banks holding illiquid, or risky, assets in their trading books.