The banks have stepped up their campaign against the Australian Prudential Regulation Authority's plans for tighter regulation of the industry, with a number of speakers using yesterday's Finsia conference as a platform to argue that the government needs to look at its priorities.The consensus among the bankers was that APRA's proposed changes to liquidity requirements would put the brakes on lending and hinder economic growth.The bankers said the government should be looking at ways to open up alternative sources of funding, such as promoting retail investor access to the corporate bond market and changing the Banking Act to permit issuance into the covered bond market.They also argued that the government should be deepening the national savings pool by increasing the minium superannuation contribution level above nine per cent.For their part, the regulators speaking at the conference made it clear that, while they did not envisage a radical overhaul of the regulatory structure of the financial services industry, some tightening of prudential rules was sure to proceed.Reserve Bank assistant governor Malcolm Edey said the Australian system had coped well but extreme measures were taken to meet liquidity demands.Edey said: "We don't want to normalise those arrangements. We want defence in depth so that banks can manage their own way out of adverse circumstances. We want to impose more discipline on the banks so they can manage their own liquidity needs."APRA chairman John Laker said: "APRA does not envisage a fundamental overhaul of the prudential system."The main changes, as already set out by APRA, will be better quality bank capital, more demanding stress tests, independent liquidity risk management functions within financial institutions, stronger liquidity buffers and counter-cyclical buffers to be released when the appropriate indicators signal a build-up of risk.On the need for enhanced liquidity, Laker said there were examples of banks that had adequate capital but still got into trouble because of the speed of the deterioration in capital markets.Laker said: "We are consulting with ADIs and we will be working through the Basel Committee to ensure that our financial institutions do not bear any unnecessary brunt. But there can be no independence in global reform."Westpac Institutional Banking group executive Rob Whitfield said his bank was concerned about the proposed change to liquidity rules. Whitfield said: "We believe it has the potential to limit growth in the economy. If the liquidity policy is enacted as drafted it will be a constraint on growth."Whitfield said the government and the regulator should be putting more effort into opening up alternative funding sources for Australian financial institutions. He would like to see Australian banks have access to the covered bond market.APRA's view on covered bonds is that the structure breaches the Banking Act because the existence of a cover pool subordinates the interests of depositors to the interests of the covered bond holders. The Banking Act requires that if a deposit-taking institution becomes unable to meet its obligations the assets of the ADI are to be available to meet its deposit liabilities ahead of