A top US bank regulator has told legislators that "inadequate" risk controls at JPMorgan Chase led to a $2 billion derivatives loss, as senators questioned him and others over a failure to prevent the debacle.

Thomas Curry, who heads the Office of the Comptroller of the Currency (OCC), told the Senate Banking Committee that the issue at JPMorgan Chase was one of "inadequate risk management" in the months leading up to the bank's announcement of the losses.

Curry's office is in the spotlight for its oversight of the bank's Chief Investment Office (CIO) unit responsible for the loss. He said it would conduct a "critical self-review" focusing on where "breakdowns and failings" occurred.

Robert Menendez, a democratic senator, used the Senate Banking Committee hearing to unleash a fierce warning to regulators in the aftermath of the investment bank's derivative trade disaster reported last month that sent shudders through the still-frail financial system.

"The blood will be on all of your hands if the 'London Whale' ultimately goes belly up next time," Menendez told regulators, referring to the all-powerful London-based trader linked to the loss.

Mistakes undetected by 100 employees

But amid worries that so-called "too big to fail" banks like JPMorgan, which has $1.8tr in assets, were taking excessive risks that could damage the entire financial system, senators expressed concern that regulators were too lax in monitoring huge trades.

The series of hearings - JPMorgan's chief executive Jamie Dimon has been invited to testify twice later this month - comes amid fierce debate over the proposed Volcker rule that would bar banks from trading for profits with their own funds in a bid to prevent them from taking dangerous risks while enjoying government guarantees.

Committee chairman Tim Johnson said he disagreed with complaints that new Wall Street reforms urge regulators "to micromanage" banks.

"To restore confidence in our financial system after the crisis, we need more, not less, scrutiny of Wall Street's activities," Johnson said.

Senator Patrick Toomey and other Republicans argued that the Volcker rule would merely limit banks' abilities to manage risk, and would impede their free-market trading.

"I'm very, very concerned that we have created a monster," Toomey told the regulators.

There were "over 100 examiners on the ground full time at JPMorgan alone," he noted, and they had still failed to spot and interdict the bank's losses.