Italy's leading bankers and business leaders have called for the Basel II rules on bank capital to be shelved or delayed, fearing a serious credit crunch next year.

The warnings came as Standard & Poor’s listed 17 Italian banks at risk of a downgrade as the delayed effects of rising defaults start to hit home.

Giampaolo Galli, director-general of Italy’s business lobby Confindustria, said the economy could not withstand the shock of credit tightening if stricter rules start to bite next year as planned.

“We must convince the authorities that it is not only necessary to postpone the changes until 2011-2012 but also to soften them,” he told Italy’s financial paper Il Sole.

“There are going to be very serious difficulties. Firms have a great need for credit and they are going to reveal awful books for 2009, with the result that their access to credit will suffer,” he said.

Corrado Faissola, head of Italy’s banking federation ABI, said he had “serious concerns” over the new rules and called for the Bank of Italy to move with great care as it draws up enforcement plans.

German banks have also demanded a rethink on the new rules, predicting a serious crunch for small business over the coming months without a change of course.

Professor Tim Congdon from International Monetary Research said the move to tighten capital rules in the middle of a deep downturn was a grave error, comparing it to the worst follies of policy-makers during the Great Depression. He fears that such tightening may tip Europe and America into deflation next year.

Italy’s banks fared well during the financial crisis because they had little exposure to US toxic debt, and Italy largely avoided a property bubble. No lenders have required a state rescue. However, it can take three years for the damage to surface from losses on corporate loans. Few banks have made full provisions.

The Basel Committee met last week to thrash out plans. It is expected to offer guidance over the next month, moving towards a regime of “risk adjusted capital” (RAC) that puts more stress on how leverage is used and is less tolerant of hybrid capital. S&P says many of the Italian banks score badly on RAC metrics.