Barney Frank, former U.S. representative and co-author of the Dodd-Frank Act, said Tuesday on CNBC's "Closing Bell" that it would be embarrassing and wrong if JPMorgan ended up being compensated by the Federal Deposit Insurance Corp.

"It was not my recollection that Washington Mutual was forced upon JPMorgan Chase and the notion that they should get the FDIC to pay part of that penalty ... is bad public policy," Frank said.

"That amount of money can't be worth the amount of bad public opinion he [Dimon] would generate by this," Frank said.

Earlier The Wall Street Journal reported that JPMorgan wanted to recover any portion of the deal related to Washington Mutual bonds from a pool of funds for that bank's creditors at the FDIC.

When asked if the door for criminal charges against big banks should be left open, former Sen. Chris Dodd said: "If that's where the evidence takes them then absolutely. ... Never did Barney and I think it was our job to prosecute people."

Dodd said he is glad that the SEC is acting aggressively and forcing banks to admit wrongdoing. "When unnecessary risk are being taken their being rewarded for that, not for performance," Frank said.

"We had to pass the law, in part, to make clearly illegal things that weren't clearly illegal before," Fank said. "It's a basic principal that you don't prosecute someone where there is ambiguity. ... If it was clear that this was illegal behavior you can get them."

The Dodd-Frank bill was signed into law by President Obama last July. The act, which was passed by Congress as a response to the financial collapse of 2008-2009, is considered the most sweeping change to financial regulation in the U.S since the Great Depression.

—By CNBC's Karma Allen