- The banks has formally requested the Fed to reconsider its required capital buffer.
- Last year, Morgan Stanley carried a 6% stress capital buffer, one of the highest among major U.S. banks.
The Federal Reserve has locked in fresh capital requirements for the nation’s largest banks, but not without pushback. Morgan Stanley is seeking a review of its result, setting up a rare challenge to the annual stress test process that shapes how much capital lenders must hold against potential economic shocks.
According to Reuters, the Fed said on Friday that the new capital levels, based on this year’s stress test results, will take effect on October 1. The requirements dictate how much of a financial cushion banks must maintain to weather a severe downturn.
The central bank added that the framework may be revised if it moves forward with a proposal to average results over two years instead of relying on a single test.
Morgan Stanley confirmed it is asking the Fed to reconsider its capital buffer. In a statement, the bank said it had sought a downward adjustment to its “stress capital buffer” and was “actively engaged” with the regulator. The Fed said it will rule on the appeal by the end of September.
Neither side disclosed details about the potential buffer level. However, last year Morgan Stanley carried a 6% buffer, one of the highest among major banks tested.
See Related: US Regulators Set To Unveil Major Changes To Bank Capital Rules
Fed’s Stress Testing
Each year, the Fed runs large banks through a hypothetical economic downturn, assessing how their balance sheets would withstand sharp losses. The tougher the impact, the larger the capital cushion the bank is required to hold.
For Morgan Stanley, the outcome could influence how much capital it has available for lending, investment, and shareholder returns. The Fed’s final decision in September will be closely watched across Wall Street.
The Federal Reserve launched an effort in April to overhaul its annual stress tests for large U.S. banks, proposing to average results over two years when determining capital requirements. The move is aimed at reducing volatility in outcomes and providing a clearer framework for lenders.
As part of the changes, the Fed suggested extending the adjustment period for banks to meet new capital requirements. Instead of the current October deadline, institutions receiving results in June would have until January to revise their capital plans, giving them three additional months to comply.
