By Meena Thiruvengadam Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--A proposal that would prevent banks from counting trust preferred and other hybrid securities as Tier One capital could cut their ability to extend credit to customers by as much as $1.5 trillion, Barclays PLC (BCS, BARC.LN) President Robert Diamond said Wednesday. Diamond was speaking at the Peterson Institute for International Economics. The proposal to which he was referring is from Sen. Susan Collins (R., Maine). The details of that proposal still are being hashed out as lawmakers continue to negotiate an overhaul of the way financial firms are regulated. "If this is implemented in isolation it will disadvantage not just U.S. banks but U.S. businesses and U.S. consumers as well," Diamond said. That would come even as the U.S. is looking to banks to boost lending, particularly to small businesses, as a means of stimulating economic growth. Diamond said Barclays supports most of the financial overhaul bill working its way through Congress but said Collins' proposal is just one of several areas that must be improved. He also is fighting lawmakers' efforts to separate commercial banking activities from banks' derivatives trading operations. "We cannot separate out derivatives business from banks because funding and derivatives go hand in hand," Diamond said. Limiting banks' derivatives' businesses could drive up capital costs for customers, he said. -By Meena Thiruvengadam, Dow Jones Newswires; 202-862-9255; meena.thiruvengadam@dowjones.com (END) Dow Jones Newswires June 23, 2010 14:00 ET (18:00 GMT)