Some two dozen midsized banks Wednesday railed against a banking reform plan put forward by the nation's most powerful industrialists, warning that it would lead to a private banking monopoly.

In a letter to top government officials, the banks added to the howl of protest heard over the past several weeks from, among others, the Finance Ministry, the Central Bank and several banking associations, who say a plan sponsored by the Union of Industrialists and Entrepreneurs, or RSPP, could destabilize the banking system, create an uneven playing field, and lead to a monopoly within the sector.

The RSPP's plan, drawn up by Alexander Mamut, head of MDM-Bank's supervisory board, is under fire for its proposal to split banks into two levels, federal and regional, based on capitalization. The plan proposes raising minimal capital limits to about $100 million for federal banks and $7 million for regional banks over the next three years.

Both sides agree the banking sector suffers from undercapitalization. The total banking capital of the country's 1,322 bank-like organizations totaled about $17 billion in the first half of the year, with state-owned Sberbank and Vneshtorgbank together accounting for about a fifth of that amount.

Such minimum requirements, imposed over a short period, would put hundreds of small banks out of business. Proponents of the plan say the sector should be weeded out because smaller banks are inefficient and clog the system.

A growing number of voices say that capital limits only separate the large from the small, not the efficient from the inefficient.

Central Bank Chairman Viktor Geraschenko wrote to Finance Minister Alexei Kudrin earlier this month warning of possible "serious negative consequences for the stability of the banking sector."

"The risk-level of small and large banks is almost equal," said Mikhail Matovnikov, deputy director of Interfax rating agency. "An increase in capital does not necessarily mean an increase in diversity. In fact, it can increase risk."

"In principle [the minimum capital requirement] makes sense. But it assumes that the calculation of capital gives a real number," said Kim Iskyan, bank analyst at Renaissance Capital. "Capitalization can be inflated."

"Mamut's proposal would in effect rub out most banks that are attempting to address the middle of the market. It would leave the pocket banks and the big state banks. What sort of sector is that?" he added.

Opponents have also criticized the proposed use of administrative methods to achieve economic goals.

The government is set to discuss banking reform on Sept. 27.