05/31/2012 01:18 pm ET Updated Jul 31, 2012

Chris Dodd On JPMorgan Chase Trading Loss: 'This Was A Big Deal'

* Dodd co-authored Dodd-Frank financial reforms

* Bill aimed to limit risk-taking by banks

* Citi's Gutierrez says fears "over-zealous" regulation

* Over-regulating could stifle growth - Citi's Gutierrez

By Megan Davies

MOSCOW, May 31 (Reuters) - Former U.S. Senator Christopher Dodd said the shocking disclosure by JPMorgan Chase & Co of a $2 billion trading loss is proof of the need for legislation he co-authored to limit excessive risk-taking by banks.

"This was a big deal, it might have sounded like a minor glitch but there were some major commitments made here," said Dodd, speaking to Reuters on the sidelines of a Moscow conference, when asked about the JPMorgan trade.

"It is indicative to me of the importance of the legislation that I co-authored," said Dodd, who wrote the reform law with U.S. Representative Barney Frank. "There's nothing perfect about any legislation, but had we had not done what we did with that bill ... we could be right back in major economic difficulties again."

The Dodd-Frank bill was created in the wake of the 2007-2009 financial crisis and aimed to curb excessive Wall Street risk-taking by increasing banking oversight, regulating the derivatives market and creating a consumer protection agency.

Signed into law by U.S. President Obama, the Dodd-Frank bill was criticized by Republicans, who charged that the regulation would increase companies' costs and prevent them from hiring.

That concern was voiced by Carlos Gutierrez, Vice Chairman, Institutional Clients Group at Citi, a supporter of Republican presidential candidate Mitt Romney, who told Reuters in Moscow on Thursday that he was concerned the incident could spark more regulation.

JPMorgan disclosed the trading loss early in May, wiping $15 billion from its market value on the day it was announced. The loss was on positions built up after Dodd-Frank took effect.

Dodd said that in the two years he spent putting the bill together, the major thing he was trying to achieve was confidence building.

"People had lost confidence in our financial structures," said Dodd, who was in Moscow to speak at a conference organised by the National Council on Corporate Governance, a Russian organisation chaired by tycoon Vladimir Potanin.

"That's coming back - look how well banks' stocks are doing in the United States versus those in Europe ... The smart players are already adjusting to this new world," he said.

JPMorgan's CEO Jamie Dimon had been one of the most outspoken bank executives in arguing that new regulations being finalised and implemented by the U.S. government go too far.

Dimon said during NBC's "Meet the Press" television program in May that the loss provided ammunition to advocates already calling for tougher regulation of banks. However, he also said that he had supported "70 percent or so of Dodd-Frank" according to a transcript of the program.

"We supported resolution authority," Dimon said in the program. "We supported higher capital and liquidity."

Dodd said he had watched the program and heard Dimon's remarks.

"To his credit, he said he was a strong supporter of 70-80 percent of legislation we drafted," said Dodd. "He hadn't said that before. I wish he'd said some of that earlier."

Gutierrez, who was former U.S. President George W. Bush's Secretary of Commerce from 2005 to 2009, said he feared the JPMorgan trading loss was "not just bad for JPMorgan, this is bad for the industry."

"Timing is not good and it unfortunately will give overly zealous regulators an excuse to be even more zealous, which is a tremendous risk that we have in the U.S. of over-regulating, and then finding ourselves a few years down the road with ... more expensive credit and a more stagnant economy," said Gutierrez.