Washington uses JPMorgan to double down on reforms

WASHINGTON (Reuters) - Reverberations from JPMorgan Chase's multibillion-dollar trading loss deepened in Washington on Tuesday, with the Democratic leader of the Senate blasting the nation's largest bank for "gambling" and congressional Republicans putting the brakes on a plan to soften Wall Street reforms.

Both Republicans and Democrats are still trying to understand the political implications of the trading debacle at one of Wall Street's highest-profile banks as they gauge how it will play in the election-year debate.

Democrats in Congress have been quick to describe the losses as evidence that a casino mentality persists at large banks, but current and former officials in the administration of President Barack Obama have struck a more cautious tone.

"I would suggest that JPMorgan take their business to Las Vegas because it's just a gamble," Senate Majority Leader Harry Reid, who represents Nevada, told reporters.

Former Obama White House Chief of Staff William Daley, who also once worked at JPMorgan, was dismissive of those comments and said banks have to take risks.

"This is a serious time and only serious statements should be made about these things, and we should not demeanor trivialize the importance of these issues, and I don't consider banking gambling," Daley said in an interview with CNBC.

Earlier in the day, Treasury Secretary Timothy Geithner said the losses were the result of poor risk management, but avoided bashing JPMorgan officials.

Speaking at an event sponsored by the Peterson Foundation, Geithner said the trades gone bad make the case for the tough rules laid out in the 2010 Dodd-Frank financial oversight law, one of Obama's main legislative achievements.

Former Treasury Secretary Larry Summers also used the trading blunder to promote Wall Street reforms.

"I think that whatever one thought about how large a safety buffer was necessary 10 days ago, it seems to me that in light of what has happened, one would tend to have a bias towards larger safety buffers, larger capital requirements, larger levels of liquidity," Summers said in an interview for the Freeland File show on Reuters.com (www.reuters.com/reuterstv)

Last week, JPMorgan disclosed it could lose more than $2 billion because of trades the bank says were intended to hedge risk but went awry. The bank's critics said the trades were speculative and not hedges.

JPMorgan Chief Executive Jamie Dimon, speaking at the bank's annual shareholders meeting in Florida on Tuesday, again apologized for the mistakes that led to losses.

GOP SENATOR WANTS DIMON TO EXPLAIN

Republicans have reacted cautiously to the losses, saying more information is needed before conclusions can be drawn.

It has, however, caused U.S. House of Representatives leaders to put the brakes on legislation intended to loosen derivatives rules required by Dodd-Frank.

Republican Rep. Frank Lucas, chairman of the House Agriculture Committee, said on Tuesday he would delay a vote on bills to rein in and clarify swaps regulation, citing the JPMorgan trading loss.

The bills, which were set to be taken up this Thursday, were unrelated to the trading loss, he said, but added that the Committee "will take the time to gather all relevant information before we proceed to ensure there are no unintended consequences of the legislation that would encourage recklessness in our financial institutions."

Senate Republicans have called for hearings and Richard Shelby, the top Republican on the Senate Banking Committee, wants Dimon and regulators to come before Congress to explain what happened, his spokesman said.

Republican presidential candidate Mitt Romney's campaign said on Tuesday that JPMorgan's huge trading losses were an unfortunate part of a free market economy.

Romney adviser Eric Fehrnstrom told NBC that while Romney supports some financial regulation, the losses at one of the nation's largest banks involved investors, not taxpayers, and that rules for Wall Street should not hamper investments.

Amid the heated political rhetoric, several analysts have cautioned that the losses are unfortunate for JPMorgan shareholders, but are not evidence that financial giants are on the brink of ruin.

Financial regulators are expected to publicly weigh in next week when Securities and Exchange Commission Chairman Mary Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler appear on Tuesday before the Senate Banking Committee for a hearing on derivatives reform.

(Reporting By Dave Clarke, Alexandra Alper, Susan Cornwell and Susan Heavey; Editing by Jan Paschal)

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