JPMorgan Chase & Co.'s $2 billion trading loss hasintensified the call for tighter regulation in Washington, withpresidential campaign officials weighing in alongside lawmakers inresponse to the bank's disclosure.

Any progress by financial-industry lobbyists in securing changesto the Dodd-Frank Act's proprietary-trading ban may have beenhalted with yesterday's announcement by Jamie Dimon, JPMorgan'schairman and chief executive officer, said Representative BarneyFrank, the Massachusetts Democrat who co- wrote the regulatoryoverhaul.

“They sensed some momentum in undercutting things, but thisstrengthens our case strongly politically,” Frank said today in atelephone interview. “It tears a lot of holes in Jamie'sarguments.”

In addition, New York-based JPMorgan is facing new scrutiny,with lawmakers calling for hearings, Securities and ExchangeCommission Chairman Mary Schapiro saying her agency is monitoringthe bank and the Commodity Futures Trading Commission planning toreview the loss, according to a person briefed on the matter.

Dimon, 56, has been a prominent critic of the Dodd-Frankprovisions including the so-called Volcker rule, which is meant tobar proprietary trading by banks with federally insured deposits.In a conference call to discuss the losses stemming from“egregious” failures in the bank's chief investment office, Dimonaccurately forecast the Washington response.

“It is very unfortunate,” Dimon said. “It plays right into allthe hands of a bunch of pundits out there.”

Senator Tim Johnson, the South Dakota Democrat who leads theSenate Banking Committee, said in a statement that the lossunderlines why “opponents of Wall Street reform must not be allowedto gut important protections for the financial system andtaxpayers.” Senator Bob Corker, a Tennessee Republican who serveson the committee, called today for hearings on the loss.

Senator Carl Levin, the Michigan Democrat who co-wrote thetrading ban named for former Federal Reserve Chairman Paul Volcker,said today in a conference call with reporters that the loss showsDimon's view to be “dramatically proven wrong.”

“It's a very telling moment and I guess we should thank JPMorganfor exposing an area where we clearly need more oversight,” JaredBernstein, former chief economist for Vice President Joe Biden,said today.

Andrea Saul, a spokeswoman for Republican presidential contenderMitt Romney said today that the loss “demonstrates the importanceof oversight and transparency in the derivatives market, somethingGovernor Romney has called for in the past.”

'More Clarity'

“As president, Governor Romney will push for common-senseregulation that gives regulators tools to do their jobs, and thatgives investors more clarity,” Saul said in a statement.

Romney, a former private-equity executive who served asMassachusetts governor, declined to answer questions about theevents at JPMorgan today during a campaign rally in Charlotte,North Carolina.

Levin and Senator Jeff Merkley, the Oregon Democrat who co-wrote the proprietary-trading provision, said in a conference callthat JPMorgan has become a “textbook illustration” of whyregulators should tighten the restrictions being drafted in theVolcker rule.

“Four years after the downfall of Bear Stearns, Lehman Brothersand the hundreds of billions in a bank bailout, we still see thatthere is a nagging need for regulators to implement financialreforms which became law in 2010,” Bart Chilton, a Democrat on theCommodity Futures Trading Commission, said today.

Wall Street firms including JPMorgan, Goldman Sachs Group Inc.and Morgan Stanley, have lobbied regulators including the Fed,Securities and Exchange Commission and Federal Deposit InsuranceCorp. to expand exemptions included in their initial Volcker ruleproposal, complaining that the measure is so broad and ill-definedthat it will increase risks for clients.

The rule would allow banks to continue activities that areconsidered hedging, as well as to serve as market-makers, acceptingrisk or holding shares of trades to facilitate client orders. Levinand Merkley said JPMorgan's loss shows the need for a stricterinterpretation of the hedging exemption included in the draftproposal released in October.

Dimon has said the trade wouldn't have run afoul of the Volckerrule restrictions, which are scheduled to take effect on July21.

Frank said he planned to use the bank's loss to defend the lawagainst efforts to roll back derivatives regulations and forcewider exemptions in the Volcker rule. He pointed to the impact ofthe losses on Dimon, who has been the leading voice against many ofthe regulations Frank put into place.

“This will diminish his ability to be that voice,” Franksaid.

Bloomberg News

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