Banking and Finance Law Daily Fed won’t object to resubmitted capital plan from Morgan Stanley
Friday, March 3, 2017

Fed won’t object to resubmitted capital plan from Morgan Stanley

By Thomas G. Wolfe, J.D.

As a result of the progress made by Morgan Stanley in addressing certain deficiencies identified by the Federal Reserve Board in last year’s "Comprehensive Capital Analysis and Review (CCAR)," the Fed has stated that it "will not object to a resubmitted capital plan from Morgan Stanley." At the same time, the Fed’s March 2, 2017, release indicates that the Fed "will continue to review and assess Morgan Stanley’s progress in addressing those deficiencies in its evaluation of this year’s CCAR submission."

In evaluating both qualitative and quantitative factors, the Fed uses the CCAR to determine whether bank holding companies can conduct planned capital actions—such as dividend payments, share buybacks, and issuances. If the Fed objects to a capital plan, then the bank holding company is not permitted to make any capital distribution unless and until the Fed expressly authorizes it.

2016 CCAR. As previously reported (see Banking and Finance Law Daily, June 30, 2016), in its 2016 CCAR, the Fed issued a "conditional non-objection" to the capital plan originally submitted by Morgan Stanley. In keeping with that assessment, Morgan Stanley was required to submit a new capital plan to the Fed to address what the regulator considered to be certain "qualitative deficiencies" in the firm’s capital planning processes. According to the Fed, those pertinent qualitative deficiencies 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."

Resubmission. In connection with Morgan Stanley’s "CCAR 2016 Resubmission," the Fed noted the firm’s progress in addressing the qualitative weaknesses previously highlighted by the agency. The Fed also observed that the "quantitative results of Morgan Stanley’s resubmission are not comparable to the CCAR results released in June 2016. The severely adverse scenario for Morgan Stanley’s resubmission was updated according to the Board’s policy and was more stringent than the severely adverse scenario used in June 2016."

Companies: Morgan Stanley

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