WASHINGTON — The Federal Reserve Board said Thursday that it would not object to Morgan Stanley’s capital plan, which the bank resubmitted to address qualitative objections arising from the 2016 Comprehensive Capital Analysis and Review stress tests.
In a statement Thursday, the Fed board said that it had decided not to object to Morgan Stanley’s capital plan “as a result of progress made by the firm in addressing deficiencies identified by the Board” — deficiencies that had included “weaknesses in the way the firm identifies and incorporates its material risks into its capital planning scenarios, key modeling practices, and the firm’s governance and controls related to both of those areas."
“The Board will continue to review and assess Morgan Stanley’s progress in addressing those deficiencies in its evaluation of this year’s CCAR submission,” the Fed said.
Those objections made Morgan Stanley the only U.S. bank to have to resubmit its capital plan, though the firm did not fail the test — unlike Deutsche Bank and Santander, which failed the test on qualitative grounds. It was the second consecutive flunking for Deutsche Bank and the third for Santander.
The Fed said that Morgan Stanley’s new capital plan showed a 4% post-stress leverage ratio — in line with the minimum required — as well as a 12.6% total capital ratio, a 9.5% Tier 1 capital ratio and 7% common Tier 1 capital ratio, all of which are substantially higher than the minimum levels.
The Fed pointed out, however, that since post-stress capital levels are based on scenarios more severe than the severely adverse scenario used in last year’s stress test, “quantitative results of Morgan Stanley’s resubmission are not comparable” to those results.