In other words, regulators want to know exactly when JPMorgan Chase executives knew about irreversible and mounting losses in its credit derivatives, disclosed publicly May 10.

“We’re investigating right now whether their earnings statements and first-quarter financial reports are accurate and truthful,” said Securities and Exchange Commission Chairman Mary Schapiro at a Senate Banking Committee hearing on implementing derivatives reform.

Both Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler told lawmakers they first heard of the losses from media reports.

The CFTC is conducting its own investigation to determine if there was any fraud or manipulation in JPMorgan’s trading of credit default swaps and related indices, considered at the heart of the bank’s risky bets.

The SEC’s Shapiro said she did not have oversight of the London-based transactions that triggered the still-climbing losses that initially was pegged at $2 billion by chief executive Jamie Dimon.

But various media reports now have the losses topping $3 billion – and counting.

“If they knew something a month earlier about what was going wrong, should they have disclosed that to the SEC, CFTC?” said Sen. Richard Shelby of Alabama, the top Republican on the banking committee. “You are investigating right now: What did they know, when did they know it and what should they have divulged.”

The heads of the CFTC and the SEC used their testimony to emphasize how the bank’s losses exemplify the need to fully implement the provisions of the 2010 Dodd-Frank Wall Street reform, which includes the “Volcker Rule” for mitigating risk to federally-insured depository institutions from risky proprietary trading.

However, the timing suggests that the largest U.S. bank by assets is exercising caution after media reports indicate that the scale of the initiated trades will result in losses past $3 billion.

JPMorgan had been approved by the Federal Reserve to purchase up to $15 billion in stock after it passed the regulator’s annual stress tests.

Regulators may also be a factor in the decision to suspend the buybacks. At $32.51 per share (as of closing Monday), the bank is trading at below tangible book value.

In Dimon’s annual letter to shareholders last month – long before the May 19 disclosure of the trade losses – the chief executive said the bank did not get permission to buy back stock until shares were selling at $45.

“Unfortunately, we were restricted from buying back more stock when it was cheap – below tangible book value,” Dimon wrote.

The bank is also looking to meet the international capital requirements under Basel III, Dimon said.

However, JPMorgan will not modify its quarterly dividend, the CEO added.

Pressure is mounting on JPMorgan from regulators and lawmakers to clarify and fully explain the actions of its London-based hedge trade transactions overseen by the bank’s chief investment office, which is entrusted to minimize risk and not indulge excess capital in unmanageable trades.

But Dimon said the London trade debacle is a rare occurrence and an isolated incident.

Dimon favors buying back shares at prices below $45, he said in his letter to shareholders.

Anything below $45 a share is lower than the company’s true value and backing back shares below that level would push up the value of investors’ shares, Dimon said.

“Our appetite for buying back stock is not as great (of course) at higher prices,” Dimon said in his letter to shareholders. “You run the same numbers as above, but at $45 per share, buybacks would be accretive to earnings and approximately break-even to tangible book value – still attractive but far less so.”

Gary Gensler, chairman of the Commodity Futures Trading Commission

The head of the U.S. Commodity Futures Trading Commission said the recent London-based hedge trading losses by JPMorgan Chase amount to a “stark reminder” that tougher regulation is needed.

Gary Gensler, chairman of the CFTC, is referring to international credit swaps that now represent a $700 trillion global market.

Swaps were initially developed to help manage and lower risk for commercial companies.

But swaps also heighten risks for international financial institutions, as they did with insurance giant AIG, which was brought down by credit default swaps at the peak of the financial crisis in 2008.

AIG’s subsidiary, AIG Financial Products, originally organized in the United States, was run out of London.

The fast collapse of AIG, a Wall Street mainstay, was evidence of the markets’ “international interconnectedness,” Gensler said, in a speech before a Financial Industry Regulatory Authority conference.

“Sobering evidence, as well, of how transactions booked in London or anywhere around the globe can wreak havoc on the American public,” he said.

And when financial entities fail, swaps can contribute to rapidly spreading risk across borders, Gensler said.

“Recently, we’ve had another stark reminder of how trades overseas can quickly reverberate with losses coming back into the United States,” Gensler said. “The largest U.S. bank, JPMorgan Chase, just suffered a multi-billion dollar trading loss from transactions in London.”

The losses, total as much as $3 billion, involved credit default swaps and indexes tied to these securities.

The Dodd-Frank Wall Street reform laws enacted in 2010 include provisions for tighter controls of the swaps market.

These rules are suppose to:

• Bring public market transparency and the benefits of competition to the swaps marketplace;
• Protect against Wall Street’s risks by bringing standardized swaps into centralized clearing; and
• Ensure that swap dealers and major swap participants are specifically regulated for their swap activity.

The CFTC has already completed 33 rules implementing these swaps reforms, Gensler said.

“We are on schedule to complete the nearly 20 remaining reforms this year, but until we do, the public is not fully protected,” Gensler said.

Even fully implemented financial reform would not have prevented JPMorgan Chase’s $2 billion-plus loss in hedge trading, Boehner said.

In an interview on ABC News’ “This Week” that aired today, Boehner also said those responsible for the losses should be held accountable.

“There’s no law against stupidity, no law against stupid trades,” Boehner said. “And as long as depositors’ money wasn’t at risk and as long as there’s no risk of a taxpayer bailout, they should be held accountable by the market and their shareholders. And they are.”

Boehner’s position differs greatly from that of President Obama, who dedicated his weekly address this weekend to encouraging Congress to help finalize provisions of the Dodd-Frank reform laws passed two years by Democrats.

Dodd-Frank, the president said, “discourages big banks and financial institutions from making risky bets with taxpayer-insured money.”

Among those provisions that have not been implemented is the Volcker Rule, which would isolate risky proprietary trading by banks from retail banking operations and federally-insured deposit accounts.

Boehner reiterated the GOP’s opposition to Dodd-Frank, but stopped short of affirming the intention of
presumptive Republican nominee Mitt Romney to repeal the reform.

“There are big problems with this law, and it needs — it needs some big changes,” Boehner said when asked if he was still for repealing Dodd-Frank.

Obama urged Congress to help finalize regulations mandated by the Dodd-Frank Wall Street reform laws passed by Democrats two years ago – the same legislation targeted for repeal by the GOP and presumptive nominee Mitt Romney.

In his weekly radio and Internet address, Obama said that JPMorgan Chase can handle its loss, but the same may not be true for other major financial institutions.

“We found out that a big mistake at one of our biggest banks resulted in a two billion dollar loss,” Obama said. “While that bank can handle a loss of that size, other banks may not have been able to.  And without Wall Street reform, we could have found ourselves with the taxpayers once again on the hook for Wall Street’s mistakes.”

Obama was referring to the initial bailout vehicle of 2008, the Troubled Asset Relief Program (TARP), a controversial safety net for many failing institutions that included cash injections for even relatively healthy banks, such as JPMorgan Chase and Wells Fargo.

“Since then, we’ve recovered taxpayer dollars that were used to stabilize troubled banks,” Obama said.

The president said that Dodd-Frank provides “smarter, tougher, common sense rules” with the intent of preventing another crisis.

The Federal Reserve has initiated steps to strengthen supervision over large bank holding companies, including a range of measures covering requirements on capital and liquidity, credit exposure, stress testing and risk management – all actions mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposed rules apply mostly to U.S. bank holding companies with consolidated assets of $50 billion or more, including JPMorgan Chase, Bank of America, Citibank and Wells Fargo.

But implementation of the so-called Volcker Rule to insulate proprietary trading by these big banks and curtail risk-taking has yet to be finalized by regulators.

Wall Street reform, the president said, “discourages big banks and financial institutions from making risky bets with taxpayer-insured money.”

And reform also encourages them to “actually help the economy – like extending loans to entrepreneurs with good ideas, to middle-class families who want to buy a home, to students who want to pursue higher education,” Obama said.

In addition to a regulatory review by the Federal Reserve, the bank’s trading activity has drawn inquiries from the the Securities and Exchange Commission, the FBI and the Commodity Futures Trading Commission.

JPMorgan Chase chief executive Jamie Dimon will appear before a Senate committee this summer to answer questions about the bank’s recent trading loss in credit derivatives, which has ignited renewed calls for tougher regulations, even from Republicans.

The GOP and presumptive Republican presidential nominee Mitt Romney have steadfastly urged repeal of the Dodd-Frank Wall Street reform laws enacted by Democrats two years ago.

“I hope it will be a substantive hearing that examines the complexities of distinguishing between a hedge and a proprietary trade, and focuses on the balance of eliminating systemic risk while not removing important tools for normal bank risk management,” said Sen. Bob Corker, R-Tennessee, a member of the Senate Banking Committee.

Last week, JPMorgan shocked the markets with the announcement of the trade loss, initially said to be $2 billion.

But the New York Times reported this week that hedge funds and other investors are taking advantage of JPMorgan’s vulnerability, creating greater losses in the underlying credit market positions held by the bank.

The total loss as grown to $3 billion, sources told the Times.

A spokeswoman for JPMorgan declined to respond to the Times report. Dimon has indicated the possibility of greater losses, with volatile market fluctuations and speculative forces out to profit from the bank’s risk-taking.

The Federal Reserve is closely examining the bank’s trading and whether there is any risk taken that would jeopardize the bank’s overall capital and liquidity structure.

JPMorgan’s financials remain strong, with Dimon having projected a profit this quarter close to the strong earnings reported for the first quarter of $5.4 billion.

Although losses from the hedge trading are unfolding, a cut in JPMorgan’s dividend is highly unlikely at this time.

Meanwhile, the Fed has yet to finalize any component of the so-called Volcker Rule, a provision of Dodd-Frank that separates proprietary trading from an institutions’ retail banking operations, preventing any exposure to federally insured deposit accounts.

After all, the largest bank by assets had been considered a robust institution, having made it through the financial crisis remarkably well. And even JPMorgan CEO Jamie Dimon said he still expects a healthy a profit this quarter that approaches the earnings reported for the first quarter ($5.4 billion).

But U.S. lawmakers and invigorated proponents of stricter big-bank reform will address in coming weeks the issue of banning big banks from risky trading for the purpose of profiting from market gyrations.

Dimon himself had been claiming that Volcker Rule provisions – not yet implemented by regulators – does not apply to hedges against economic forces, the same type of trading in credit derivatives that rocked JPMorgan Chase. That argument has lost any punch it may have had.

U.S. Senator Tim Johnson, D-South Dakota, chairman of the Senate Banking Committee, said today that the committee will hold hearings on Wall Street reform implementation over the next few weeks, questioning mostly key financial regulators.

There is little doubt that JPMorgan’s $2 billion fiasco will like take center stage as regulators are being questioned on the fate of Volcker Rule implementation.

Sen. Bob Corker, R-Tennessee, a member of the Senate Banking Committee, called on Johnson to hold hearings on the JPMorgan trades on Friday.

“Clearly, the losses posted by JP Morgan are significant, and as policy makers we should understand in detail what has transpired,” Corker said.

In a statement, Corker said that the following questions need to be answered:

1. “Are we confident that taxpayers are fully protected from losses at major financial institutions?”
2. “Were these bona fide hedging transactions, or were these poorly managed proprietary trades? And what, precisely, is the distinction?”

Lawmakers who helped fashion the Volcker Rule under the Dodd-Frank Wall Street reform of 2010 said Dimon is mistaken about a loophole on hedging within the rule.

Democratic senators Jeff Merkley of Oregon and Carl Levin of Michigan, said they both meant for the Volcker Rule to prohibit the type of trades that JPMorgan Chase traders were allowed to perform. The senators will urge regulators to ban proprietary trading and hedging against economic forces.

“The law very clearly already excludes this activity,” Levin said told reporters on Friday. “It specifically says that every single position that you take as a hedge has got to be tied to a specific risk arising from another specific position. Now, that’s about as clear as you can write. So the regulators are now hopefully going to implement the law as written.”

JPMorgan announced that Ina Drew, Chief Investment Officer, has made the decision to retire from the firm. Drew has worked for the bank for more than 30 years, most recently as head of the Chief Investment Office.

“Ina Drew has been a great partner over her many years with our firm. Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events,” said JPMorgan CEO Jamie Dimon.

Dimon has been under intense pressure since last Thursday’s surprise admission that the nation’s largest bank by assets lost $2 billion in the trading of credit derivatives. The losses occurred over a span of a few weeks.

Dimon today also announced that Mike Cavanagh, the former chief financial officer, would investigate the firm’s losses, the result of a complex trading strategy out of London which has drawn the scrutiny of the regulators

The $2 billion hit has also drawn the ire of lawmakers who are pushing for action by banking regulators on the so-called Volcker Rule, which would separate a big bank’s proprietary trading divisions from its retail banking operations that manage consumers’ deposits.

Dimon sought to ease concerns about the bank’s overall viability in the wake of the staggering loss. He had been a vocal opponent of the Volcker Rule, even as trading losses mounted over recent weeks.

“It’s important to remember that our company is very strong and well capitalized, with leading franchises across our businesses,” Dimon said in a statement. “We maintain our fortress balance sheet and capital strength to withstand setbacks like this, and we will learn from our mistakes and remain diligently focused on our clients, who count on us every day.”

Drew’s replacement is Matt Zames, another JPMorgan senior executive, who has headed the U.S. Treasury Department’s Borrowing Advisory Committee, a group of bond traders and strategists. Zames has been a top adviser to the Treasury.

Zames is currently co-head of Global Fixed Income for JPMorgan’s Investment Bank and head of Capital Markets within its Mortgage Bank. Zames will continue in his mortgage-related responsibilities.

GMAC was one of the leading subprime lenders, providing mortgages for higher-risk borrowers during the run-up to the financial crisis of 2008.

Those failing mortgages combined with the company’s faltering core auto finance business prompted the Treasury to give it a $15.8 billion bailout in 2009.

It was a bailout that covered a dual effort to rescue the troubled auto industry and housing market.

The company started as the finance unit of automaker General Motors under the GMAC name. But it changed its name to Ally following the bailout.

Ally continues operating an auto finance business, in addition to an online commercial bank.

“The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” said Ally Chief Executive Officer Michael A. Carpenter.

Ally also said it plans to launch a process to explore “strategic alternatives” for its international operations.

“These actions will enable Ally to further invest in and grow its leading U.S.-based automotive services and direct banking franchises and be best positioned to return additional capital to the U.S. taxpayer by year-end,” Ally said in a statement.

In an interview on NBC’s Meet the Press that aired today, Dimon addressed the legality of the hedging strategy’s implementation by the London-based trader who worked out of J.P. Morgan’s Chief Investment Office.

The sudden after-hours announcement Thursday of the $2 billion loss sent shock waves throughout the financial industry and emboldened supporters of the so-called Volcker Rule. The pending regulation will curb such proprietary trading by the biggest banks, separating risk-taking from retail banking operations.

The Securities and Exchange Commission has opened a preliminary investigation into JPMorgan’s practices tied to the credit derivative trades. JPMorgan is this nation’s largest bank by assets.

“The immediate question — the SEC is looking into this. Did the bank break any laws? Did it violate any accounting rules or SEC rules?” Meet the Press host David Gregory asked Dimon.

“So we’ve had audit, legal, risk, compliance – some of our best people look at all of that,” Dimon responded. “We don’t know if any of that is true yet. Of course, regulators should take a look at something like this. That’s their job … They’ll come to their own conclusion.”

“We know we were sloppy. We know we were stupid. We know it was bad judgment,” Dimon added.

Dimon also conceded that the timing of the bank’s trading loss gives proponents of the Volcker Rule fresh and effective ammunition. Dimon has strongly opposed the reform regulation stemming from the 2010 Dodd-Frank Wall Street Reform.

“This is a very unfortunate and inopportune time to have this kind of mistake,” Dimon said.

The chief executive said the bank will emerge stronger from this episode. The losses in the credit securities were about $2 billion, but the bank estimates losses at the unit at $800 million, the poor trades offset by $1 billion or so in gains on securities sales.

JPMorgan last month reported earnings of $5.4 billion for the first quarter, or $1.31 per share. Analysts were expecting $1.16 per share.

“We intend to learn from it, fix it and be a better company when it’s done,” Dimon said.