U.S. Regulators ‘Paralyzed’ by Cost-Benefit Suits, Chilton Says

Wall Street banks are using the threat of lawsuits to prevent regulators from writing rules mandated by the Dodd-Frank Act, said Bart Chilton, a Democrat on the U.S. Commodity Futures Trading Commission.

“Some regulators live in constant fear and are virtually paralyzed by the threat” that they will face “spuriously” filed suits alleging that the costs and benefits of their rules weren’t adequately considered, Chilton said in a speech prepared for the Trade Tech 2012 conference today in New York. “It is a bastardization of the conduct and use of cost-benefit analyses in regulatory rulemaking.”

The CFTC is defending against a challenge filed last year in federal court that the agency overstepped its authority under the Dodd-Frank Act and inadequately assessed the costs of new limits on speculation in oil, natural gas and other commodities. The lawsuit was filed by the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association.

The lawsuit is one of the financial industry’s highest profile efforts to challenge Dodd-Frank, the regulatory overhaul enacted in 2010. The associations represent JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), among other derivatives dealers. A judgment is pending.

Chilton, a supporter of the speculation limits, said banks and others should be required to provide cost analyses to rebut regulators’ conclusions.

“We put out a proposal, ask for comments and ask what the costs might be,” Chilton said. “Then we either aren’t provided with costs of the regulation, or what we get from the commenters isn’t very helpful.”

Chilton said CFTC data show that hedge funds and other speculators increased their positions in energy markets 43 percent in January of this year from June 2008.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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