(AP) WASHINGTON - Federal regulators are reviewing what JPMorgan Chase (JPM) told investors about its finances and the risks it took weeks before suffering a multibillion-dollar trading loss.
Mary Schapiro, chairman of the Securities and Exchange Commission, told the Senate Banking Committee Tuesday that the agency is examining JPMorgan's earnings statements and first-quarter financial reports to determine if they were "accurate and truthful."
Schapiro and Gary Gensler, chairman of the Commodity Futures Trading Commission, said the $2 billion-plus loss at JPMorgan should be a lesson for regulators that they need to tighten rules mandated under the 2010 financial overhaul.
"It would be wrong for us not to take this example," Schapiro said. JPMorgan is the biggest U.S. bank by assets and the only major U.S. bank to stay profitable during the 2008 financial crisis.
Most Republican lawmakers voted against the financial overhaul. They say it won't prevent another financial crisis. And they worry that it will drive business overseas.
Sen. Richard Shelby, the ranking Republican on the panel, questioned why Schapiro and Gensler weren't aware of what was happening at JPMorgan.
"So you really didn't know what was going on ... until you read the press reports" in April? Shelby asked them.
The trading loss was disclosed May 10 by JPMorgan CEO Jamie Dimon in a hastily convened conference call with investors and journalists. In April, Dimon had dismissed concerns about the bank's trading as a "tempest in a teapot" - a characterization he recently acknowledged he had been "dead wrong" to make.
Two more hearings are scheduled before the Senate panel in the coming weeks. Officials from the Federal Reserve and the Treasury Department will testify on June 6.
Dimon has agreed to testify at the third hearing, which has yet to be scheduled.
The JPMorgan CEO has said the loss came from trading in credit derivatives that was designed to hedge against financial risk, not to make a profit for the bank.
The CFTC is investigating JPMorgan's ill-timed bet on complex financial instruments that led to the trading loss, Gensler said.
Under the financial overhaul, the CFTC gained powers to monitor trading in indexes of derivatives. JPMorgan invested heavily in an index of insurance-like products that protect against default by bond issuers. Hedge funds were betting that the index would lose value, forcing JPMorgan to sell investments at a loss.
Schapiro and Gensler said they were hopeful that a key part of the overhaul could prevent the type of loss that occurred at JPMorgan.
The so-called Volcker Rule would prevent banks from trading for their own profit. The idea is to protect depositors' money, which is insured by the government. Regulators are finalizing the rule, which is scheduled to take effect in July. But banks will have until July 2014 to meet its requirements.
In addition to the Senate hearing, the Financial Stability Oversight Council, the coordinating group for federal financial regulators, received a preliminary briefing on JPMorgan's losses.
This group, chaired by Treasury Secretary Timothy Geithner, was updated Tuesday on the status of the investigation by officials at the Federal Reserve, Office of the Comptroller of the Currency, the SEC and the CFTC.
"Those regulators are still in the process of conducting their evaluation of what happened and why," said Treasury spokesman Anthony Coley.
"That examination is an important input into the ongoing effort to design safeguards and reforms, including the Volcker Rule, so that mistakes in judgment at individual banks are less likely to threaten the broader financial system and economy," Coley said. He said the council would return to this examination at its next meeting in June.
Dimon has been among the most vocal critics of the Volcker Rule. The big Wall Street banks won an exemption in the rule: It would let them make such trades to hedge not only the risks of individual investments but also the risks of a broader investment portfolio.
Gensler acknowledged in his appearance before the Senate Banking panel that the various federal regulators working on the rule, from a half-dozen agencies, don't agree on how strict it should be.
"We will ultimately have differences," he said.