The Federal Reserve Board announced on Tuesday that it has revised Morgan Stanley’s stress capital buffer requirement following a request for reconsideration from the firm. The new requirement for 2025 is set at 4.3 percent, which is lower than the initial figure of 5.1 percent.
The Board’s process allows banks to challenge their assigned stress capital buffer, which is derived from the results of the annual stress test. Banks must provide a detailed explanation for why they believe reconsideration is warranted, after which the Board reviews and independently assesses the request.
According to the Federal Reserve, its analysis found that losses estimated in Morgan Stanley’s fair value option loan portfolio were overly conservative. This assessment was influenced by “the unique composition of the bank’s loan portfolio.” Additionally, the Board decided to use Morgan Stanley’s second largest counterparty in measuring potential losses from a default scenario involving its largest counterparty, stating this approach would “be more consistent with the Board’s treatment of similar counterparties.”
The Federal Reserve also noted it will review possible refinements to its stress test models as part of an upcoming proposal aimed at increasing transparency around these tests.
“Based on an analysis of information presented by Morgan Stanley, the Board determined that estimated losses in the bank’s fair value option loan portfolio were too conservative. This was due, in part, to the unique composition of the bank’s loan portfolio. In addition, the Board determined to use the bank’s second largest counterparty when measuring counterparty losses associated with default of the largest counterparty, as doing so would be more consistent with the Board’s treatment of similar counterparties,” according to a statement from the Federal Reserve.
More information about recent results and requirements can be found in related documents on 2025 Federal Reserve Stress Test Results and Large Bank Capital Requirements.
