By Pete Schroeder

WASHINGTON (Reuters) - U.S. regulators are set to propose a rule that could significantly raise capital requirements for larger banks, forcing them to cut costs and retain earnings in an effort to cushion against potential losses that could harm customers and investors.

The proposal, to be unveiled later on Thursday and voted on by the Federal Deposit Insurance Corporation and the Federal Reserve, marks the first in an extensive effort to tighten bank oversight, particularly in the wake of spring turmoil that saw three large financial firms fail.

The rule, which would implement a 2017 agreement by global regulators, aims to overhaul how banks gauge their riskiness, and in turn how much money they must keep on hand.

Industry opponents have already begun to criticize the plan as banks seek to soften, delay, or otherwise derail the government's long-planned effort. They argue the increases are unjustified and economically harmful.

"The banking industry probably didn’t influence the upcoming proposal as much as it wanted. But it’s determined to fight on what it sees as major issues in the months between Thursday and whenever a final rule is approved," Ian Katz, managing director at Washington-based Capital Alpha Partners, said in a research note.

Top officials at banks like JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) have warned stricter rules could force them to pull back from services or increase fees. Analysts say it could take years of retained earnings to comply, pinching their ability to boost dividends or buy back shares.

In what is expected to be a lengthy and technical proposal, bank regulators want to strengthen how firms measure their risk on lending, trading and internal operations. The proposal would see U.S. regulators implement a previous global agreement via the Basel Committee on Banking Supervision.

Fed Vice Chair for Supervision Michael Barr, who is leading the effort, said he will also seek stricter rules for firms with more than $100 billion in assets, which could include banks such as Citizens Financial (NYSE:CFG) Group, Fifth Third, Huntington and Regions.

Barr, a Democrat picked by President Joe Biden, has argued banks need bigger reserves to guard against unforeseen risks -- such as when several banks faltered earlier this year under heavy unrealized losses as interest rates climbed, forcing government regulators to step in to protect depositors.

"Bank capital is critical," said Dennis Kelleher, president and CEO of Better Markets, which advocates for tougher financial rules. "However, maximizing Wall Street’s bonuses depends on minimizing capital and that’s why Wall Street fights to prevent regulators from requiring them to have enough capital."