McCain: JP Morgan has assumed they are Too Big To Fail

Speaking during a US senate hearing following a report on bank JP Morgan, Senator John McCain has said that:

JP Morgan has developed a business model based on the notion that they are Too Big To Fail

During the hearing JP Morgan has been slammed for taking risky moves that put the taxpayer at risk. The problem is that it makes sense for the bank to operate in such a way precisely because of the implicit backing of the US government should it near failure. Firms normally operate by weighing potential profits against losses. When JP Morgan isn't allowed to make losses (because the government would intervene to protect the institution) then risky behaviour to maximise profits approaches costlessness.

Too Big To Fail remains the cause of many of the financial service industry's problems. Other regulations will likely be ineffective at best, counter-productive at worst, until processes can be developed to allow failing banks to collapse and make way for new banks.