A millionaire City trader known as the "London Whale" for the vast size of his bets on the markets, has emerged as the culprit behind a $2bn (£1.25bn) trading loss at one of the world's biggest investment banks.

Bruno Iksil was also known in City circles as Voldemort – the Harry Potter bogeyman who is referred to in the fantasy novels as "He who must not be named" – due to the awed regard he was held in. Until this week.

In an online profile of the City trader, Mr Iksil noted that he is "walking over water" but also suggested he was "humble". It was reported last night that he eschewed the traditional City attire for less formal black jeans and an open-necked shirt. He is said to have earned up to $100m a year.

Mr Iksil built up his huge losses by betting on the creditworthiness of big companies. The size of his losses only emerged after the bank took one of its regular snapshots of the current state of its trading books.

The debacle, which triggered a rout of nearly 10 per cent in the bank's share price last night, shines another grim light on the activities of City banks' so-called casino trading arms.

Mr Iksil had built up his reputation as what one rival banker described yesterday as a "monster trader" over recent years. While attracting terrifying monikers in the City, he was variously described yesterday as a "fatherly" character and "not the sort of trader who drives a Ferrari and wears a Rolex".

He commutes weekly from his home in Paris to JPMorgan's offices in London Wall and is known for his pride in being French. In his late 30s,in 1991, he graduated from the elite Grand École Centrale de Paris, a hothouse for the political and business elite. He joined JPMorgan in 2003.

Mr Iksil worked in JPMorgan's Chief Investment Office. Controversially, this is the arm of the bank which is supposed to make investments that balance out the risks being taken by the rest of the bank on its loans to companies and individuals.

His job was to make investments that effectively mirrored JPMorgan's exposures, so that, if a bank loan went sour, Mr Iksil's mirror-image investment would go up.

However, it appears that his trading activities became decoupled from those of the main bank, and that rival banks and hedge funds started attacking his trades by taking bets against them. As the market turned against him, his enormous trading positions plunged even further into the red.

Chief Investment Office functions in the big investment banks have come under scrutiny amid allegations that they are really a way of allowing them to skirt around new rules following the financial crisis preventing banks taking trading bets with their own money.

Traders yesterday named several other major institutions with similar set-ups, including many global investment banks. Inevitably, the JPMorgan crisis led to calls for new regulation to clean up the industry. One analyst, Michael Mayo of Credit Agricole, said it highlighted how "some of the banks may now be too big to manage".

The fact that it was JPMorgan which has been brought so low only made the situation worse for bankers. It has basked in the reputation of being the bank which survived relatively unscathed through the crisis which destroyed many of its rivals. Its charismatic chief executive, Jamie Dimon, who described the losses as being down to "errors, sloppiness and bad judgement", has led the industry's backlash against tougher regulation.

Mr Dimon was keen to prevent a further clampdown on banks by insisting that the problem was only at JPMorgan, rather than being an industry-wide issue. "It puts egg on our face and we deserve any criticism we get... Just because we're stupid doesn't mean that everyone else was."

It is not thought Mr Iksil has lost his job yet. He was part of a fairly small team of traders. Heads will definitely roll over the affair, bankers said. In the firing line will be Ina Drew, the banker in charge of Mr Iksil's unit. A 54-year-old banking veteran, she was paid £8.7m last year.

Mr Iksil's immediate boss, Achilles Macris, will also be fearing for his position, although it is understood that he still works with the bank. Following the emergence of the UBS trading scandal involving Kweku Adoboli in September last year, around two dozen managers were fired.

Democrat Senator Carl Levin in the US said: "The enormous loss is just the latest example of what the banks call 'hedges'. These are often risky bets that 'too-big to-fail' banks have no business making. Today's announcement is a stark reminder of the need for a regulator to establish tough, effective standards."

The main plank of the regulations he has championed, the Volcker Rule, forbids banks making bets with their own money. The banks have been pushing, with some success, to get the proposals watered down.

Mr Dimon recently declared: "Paul Volcker [the former Federal Reserve chairman] by his own admission has said he doesn't understand capital markets. He has proven that to me."

In the UK, the Independent Commission on Banking has ordered that banks' high-street retail operations be separated from the casino investment banking arms. The Commission, and the Government, have been accused of watering down recommendations following intensive lobbying.

Critics of banking's appetite for taking risks yesterday pointed to the recent collapse of MF Global as being yet more evidence that banks are incapable of understanding the complex risks that they take on.

Frank Partnoy, a Professor of law and finance at the University of San Diego, said of the banks' betting with their own cash, known as proprietary trading: "They're playing with fire. With a hedge, you start to feel safe about it and it lulls people into a false sense of security. It can be a wolf in sheep's clothing."

Additional reporting by Nick Goodway

Bruno's lost billions: How hedged bets went wrong

JP Morgan's chief executive Jamie Dimon last night refused to reveal exactly how one of the US bank's "super-traders" managed to blow almost $2bn dollars.

But rival traders said that Bruno Iksil had taken huge bets, known in banking jargon as positions, on the debt ratings of bonds issued by 121 major US blue-chip companies.

These bets can be highly volatile particularly when underlying financial markets are in turmoil.

They also suggested that hedge funds had started spotting how big these gambles were and began taking out their own huge bets against JP Morgan's bets – driving down their value.

The massive losses came to light late last night when Mr Iksil's bosses took a snapshot of the current value of his bets and suddenly realised how sour they had turned.

It was also suggested that Mr Iksil was acting as a lone-wolf trader using the bank's money in the market casino.

Mr Iksil worked in a division of JPMorgan known as the chief investment office.

The office's job is to make investments that mirror the loans that the bank has made elsewhere.

So if the value of the loans falls, then the investments side should go up, limiting the bank's overall exposure to losses.

Banking's biggest losers: Rogue traders and city slickers who just got it wrong

Kweku Adoboli, UBS, 2011 The bank lost $2.3bn (£1.4bn) after Mr Adoboli's alleged rogue trades ran up vast losses on derivatives, leading its chief executive to resign. Mr Adoboli, 31, is awaiting trial. Prosecutors allege he made unauthorised trades and falsified records on transactions.

David Higgs, Credit Suisse, 2009 In a scam that one attorney described as "greed run amok", a group of employees led by Higgs made a $2.65bn loss for the bank after falsifying the trading books on mortgage securities – all in pursuit of fattening their own pay cheques.

Jérôme Kerviel, Société Générale, 2008 The bank lost $6.3bn after Kerviel overstepped his trading limits on European share index futures. But Kerviel claimed that he was by no means a rogue trader – suggesting that, as long as a banker turned a profit, the methods used to obtain it were ignored.

John Rusnak, Allied Irish Banks, 2007 The bank lost $691m when it found Rusnak – described as "Mr Middle America" – had been hiding his trading losses. Mr Rusnak was accused of using fictitious trades and false trade confirmations to hide his losses and to make it appear he was making a profit as a currency trader.

Yasuo Hamanaka, Sumitomo, 1996 Dubbed "Mr 5 per cent" for cornering 5 per cent of the copper market, Hamanaka conducted off-the-book trades which forced up the commodity's price. He used offshore bank accounts to bury his losses but, when when the scandal was uncovered, he lost the bank $2.6bn.