Overview

• The Federal Reserve lowered Morgan Stanley’s requirement to 4.3% from a preliminary 5.1% for the coming year after the firm sought reconsideration of June’s stress-test result.
• Supervisors determined projected losses for the bank’s fair value option loan portfolio were too conservative given its unique composition.
• In measuring losses from a default of the largest counterparty, the Fed used the firm’s second-largest counterparty to align with treatment of similar counterparties.
• The move followed the Fed’s formal reconsideration process and a unanimous Board vote one day before new capital requirements take effect on October 1.
• The Board said related model refinements will be considered in an upcoming stress-test transparency proposal, and Morgan Stanley publicly welcomed the outcome.