In the wake of JPMorgan Chase’s $2 billion Fail Whale trade and the ensuing federal investigation into violations of disclosure laws, US Senate candidate Elizabeth Warren has called on JPM CEO Jamie Dimon to resign from his position on the board of the Federal Reserve Bank of New York. The announcement brings to light the fact that bank executives control most of the positions at the regional banks, and they select the Fed regional presidents that help to set monetary policy for the nation. With respect to the New York Fed, those bank executives are typically Wall Street titans. So lords of finance like Jamie Dimon have a role in setting US monetary policy and even Fed oversight policy, a classic case of foxes guarding the hen house.

This is what Warren is calling attention to with her demand. “Wall Street banks continue to have fundamental problems, and tough oversight and accountability are urgently needed,” Warren said in a statement accompanying the announcement. “But Dimon is not only the CEO of JP Morgan, he is also a member of the Board of Directors of the New York Federal Reserve Bank, where he advises the Federal Reserve on the oversight of the financial industry. After the biggest financial crisis in generations, the American people are frustrated that Wall Street has still not been held accountable and does not appear to consider itself responsible. Dimon should resign from his post at the New York Fed to send a signal to the American people that Wall Street bankers get it and to show that they understand the need for responsibility and accountability.”

Dimon has been perhaps the loudest voice on Wall Street against the new set of regulations ushered in by Dodd-Frank. In particular, Dimon has castigated the Volcker rule, saying that the regulation restricting certain kinds of proprietary trading by financial firms would cost them around $400 million in compliance costs. Dimon recently called former Fed chair Paul Volcker, for whom the Volcker rule is named, “infantile” and “nonfactual” for his insistence on the need for more regulation of Wall Street. As financial reform architect Barney Frank said when the Fail Whale trade came to light, “JPMorgan Chase, entirely without any help from the government, has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.”

The Volcker rule as envisioned by federal regulators may not even restrict the type of portfolio hedge engaged in by JPMorgan Chase, though Frank said today on ABC that he hoped it would. The rule has been watered down and cluttered with loopholes by regulators, under pressure from banks like JPM, since its already weakened state from Dodd-Frank. The trade may also have violated proposed derivatives rules, which may have required a trade of this size, involving credit default swaps, to have been cleared and transparently executed.

Warren renewed her call for Dimon to step down after his appearance today on Meet the Press, the product of a fairly unprecedented do-over interview. Dimon admitted that the bank was “sloppy” and “stupid” with the trade, and that his firm exhibited “bad judgment.” Warren reacted to the appearance by saying that “After the biggest financial crisis in generations, the American people are frustrated that Wall Street has still not been held accountable and does not appear to consider itself responsible.”

JPMorgan Chase can most likely absorb the losses from their trade, although it is still in the midst of being wound down and further losses could ensue. But Warren added that “We need to stop the cycle of bankers taking on risky activities, getting bailed out by the taxpayers, then using their army of lobbyists to water down regulations.” The losses do show that Wall Street continues to engage in risky activities, and if this occurred to a less secure bank or in a more volatile trading environment, it could have resulted in a situation where the bank would come back to the government for more aid.

Warren’s opponent in Massachusetts, incumbent Senator Scott Brown, has generally been a darling of Wall Street, raising millions from the financial industry and helping create a series of concessions in the legislative language to Dodd-Frank. This move puts pressure on him as well as Dimon. But I’m glad that it points out the regulatory capture that exists in our regional Federal Reserve banks.