U.S. Senate Committee on Banking, Housing and Urban Affairs ranking member urges Fed OCC and FDIC to revoke Morgan Stanley exemption for European affiliate activities

Ranking Member Elizabeth Warren of the U.S. Senate Committee on Banking, Housing and Urban Affairs sent a letter to Federal Reserve Vice Chair for Supervision Michelle Bowman, Office of the Comptroller of the Currency Comptroller Jonathan Gould and Federal Deposit Insurance Corporation Chairman Travis Hill urging them to revoke a special exemption granted to Morgan Stanley. The letter argues the exemption violates Section 23A of the Federal Reserve Act by allowing the bank to use American taxpayer deposits to support risky financial activities in Europe, diverting deposits away from domestic lending and increasing exposure to risks in European financial markets. Warren says Morgan Stanley’s proposal fails both prongs of the Section 23A exemption test, particularly the public interest requirement. Citing the agencies’ prior definition of public interest, she argues that moving foreign affiliate nonbank activities such as trading and investment banking into an insured bank could threaten bank safety and soundness, expand the federal safety net and increase risks to the Deposit Insurance Fund. The letter requests information from the agencies by June 3, 2026 and warns that if the exemption is not reversed, future regulators would need to require divestiture of the transferred assets and liabilities.