By Pete Schroeder

NEW YORK The Federal Reserve's top bank watchdog defended its push to overhaul capital requirements, saying they would have a minimal impact on borrowing costs and make the industry more stable.

Michael Barr, the Fed's vice chair for supervision, told a conference in New York on Friday that the so-called "Basel endgame" proposal is mainly focused on raising capital requirements for activities like trading, rather than lending.

He was also dismissive of the industry's aggressive opposition to the draft rules, describing it as outside the norms of typical policy debates. Bank trade groups have run advertising campaigns, including during a National Football League game and on social media, pushing back against the proposal.

"I have been surprised. I do think that some of the advertisements and things you're seeing are extremely unusual," he said. "Normally, we issue a proposal and then we get very detailed commentary, and we take those comment letters into account."

When asked about the ads, he likened them to the unintelligible sounds adults would make in "Peanuts" cartoons.

Banks have loudly complained about the proposal, which overhauls how banks gauge their risk and require them to set aside more capital. Industry executives said the draft rules would force them to raise costs and potentially curb lending.

Barr countered those views. If the proposal is adopted, the average loan would only see a cost increase of 0.03%, assuming banks passed all the new lending costs on to the borrower, he said. The changes were first floated in July.

"It's a very, very small change in the cost of credit, and a significant increase in the results," he said at an industry conference.

(Reporting by Pete Schroeder, editing by Lananh Nguyen and Chizu Nomiyama)