COPENHAGEN — Europe's banking industry needs to shrink its balance sheets to improve capital structure, said JP Morgan Chief Executive James Staley Friday.

"There is clearly a need to recapitalize the European banking industry," said Mr. Staley, speaking at the International Institute of Finance's Spring Session in the Danish capital. "The way this is going to happen is not by raising equity, but by shrinking the balance sheet. That's ...where investors see the reality right now on the European banking stage."

JP Morgan is the investment banking arm of U.S.-based global financial services group JP Morgan Chase & Co. (JPM), one of only major institutions that have shouldered the global financial and economic crisis without incurring any quarterly losses.

Mr. Staley said an important explanation for the success of JPM & Chase in weathering the storm has been its size and the integration of investment banking and retail banking services.

"We are incurring some regulatory headwinds because of our size, but ultimately our scale works to the advantage of our shareholders," said Mr. Staley, adding that sizeable and global banks offer a certain degree of stability to the financial system.

Still, he said, large banks should be allowed to go down. Some institutions can be too big to go through the standard bankruptcy proceedings, but "overall," he said, "you cannot be too big to fail."

JPMorgan Chase & Co. operates in 60 countries worldwide, has assets in the volume of $2.3 trillion and employees 240,000 people.

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