The Federal Reserve Board modified Morgan Stanley’s stress capital buffer (SCB) requirement following the firm’s request for reconsideration, reducing the 2025 requirement to 4.3% from a preliminary 5.1%. The stress test framework allows banks to seek reconsideration of their SCB, the capital requirement stemming from the stress test, by submitting a detailed explanation that the Board then reviews through an independent assessment. In Morgan Stanley’s case, the Board concluded estimated losses in the firm’s fair value option loan portfolio were too conservative, in part due to the portfolio’s unique composition. It also adjusted the counterparty-loss methodology by using the bank’s second-largest counterparty when measuring losses associated with default of the largest counterparty, to better align with how similar counterparties are treated. Any potential stress test model refinements related to this request will be considered in the Board’s upcoming proposal to improve stress test transparency.
Federal Reserve Board 2025-09-30
Federal Reserve Board lowers Morgan Stanley’s stress capital buffer to 4.3% after reconsideration request
The Federal Reserve Board reduced Morgan Stanley's 2025 stress capital buffer requirement to 4.3% from 5.1% after reconsidering the firm's request. The adjustment was due to conservative loss estimates in the firm's fair value option loan portfolio and changes in the counterparty-loss methodology. Future stress test model refinements will be addressed in the Board's proposal to enhance transparency.