* Dimon had been leading critic of new rules
* Trading losses make it harder for Dimon to play this role
* Wall Street critics say losses show need for reform
By Dave Clarke
WASHINGTON, May 11 (Reuters) - Wall Street may have lost its most potent spokesman against Washington reforms.
JPMorgan Chase & Co Chief Executive Jamie Dimon has parlayed his bank's reputation as a white knight during the financial crisis into a position as the de facto representative fighting against excessive post-crisis regulation.
But the revelation of a shocking trading loss of at least $2 billion from a failed hedging strategy diminishes Dimon's credibility, and is already unleashing calls to get even tougher on big banks.
"The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today," said Democratic U.S. Representative Barney Frank, who co-authored the 2010 Dodd-Frank financial reform law.
Details are still emerging about the trading loss, the amount of which could still grow, and analysts said it is not yet clear if the trades would have violated the forthcoming Volcker rule reform.
Dimon has been critical of the Volcker rule, a provision in Dodd-Frank that will ban banks from proprietary trading, or trades that are made solely for their own profit.
Regulators are still working to finalize the rule, and to define an exemption for hedging. They have struggled with how to keep it broad enough to allow for bona fide hedging yet narrow enough to ensure that banks cannot pass off speculative bets as hedges.
Securities and Exchange Commission Chairman Mary Schapiro, whose agency is among the regulators finalizing the Volcker rule, said on Friday that regulators are monitoring the JPMorgan situation.
"I think it's safe to say that all the regulators are focused on this," Schapiro told reporters after speaking at an Investment Company Institute conference in Washington.
The trading loss emboldened others to call for even more dramatic reforms than those currently being carried out as part of Dodd-Frank.
The 2010 law stopped short of dismantling the biggest banks or bringing back the Glass-Steagall law that separated federally insured banks from investment banks and insurers.
Dallas Federal Reserve Bank President Richard Fisher, who has advocated for the breakup of the top five U.S. banks, said on Friday he is worried the biggest banks do not have adequate risk management.
"What concerns me is risk management, size, scope," he said at a Texas Bankers Association meeting in answer to a question about JPMorgan's trading loss.
"At what point do you get to the point that you don't know what's going on underneath you? That's the point where you've got too big."
JPMorgan is the largest U.S. bank with roughly $2.3 trillion in assets.
JPMorgan emerged from the 2007-2009 financial crisis with the best reputation among big U.S. banks for identifying risk and for staying away from the pitfalls, like too much exposure to the subprime housing market, that damaged its rivals.
With that credibility in tow, Dimon has been vocal with his view that excessive regulation such as stringent capital standards, will make it harder for banks to provide loans and help drive economic growth.
"Has anyone bothered to study the cumulative effect of all these things?," he asked Federal Reserve Chairman Ben Bernanke in June at a banking conference in Atlanta. "Do you have a fear, like I do, that when we look back and look at them all that they will be a reason it took so long that our banks, our credit, our businesses and most importantly, job creation, started going again?"
Dimon was quick to admit on Thursday that mistakes were made and that bank executives have "egg on our face."
The mea culpa, however, does not soften the shot to his reputation.
"This is a black eye and it's acute because Jamie has been so critical of Dodd-Frank and the regulatory response to the financial crisis," said Brian Gardner, an analyst at Keefe, Bruyette & Woods Inc. "It undercuts his credibility at least in the short-term."
Dimon is scheduled to appear on NBC's Meet the Press on Sunday to discuss "is America better off than four years ago?" in an interview, awkwardly, taped this week before the bank disclosed its trading losses.
Reform advocates quickly seized on JPMorgan's trading losses.
"Jamie Dimon and JPMorgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage," said Dennis Kelleher, president of Better Markets, a group that advocates for strict oversight of Wall Street.