On Monday, Morgan Stanley was left out of the biggest buyout deal ever, when Electronic Arts agreed to go private with help from the investment bank’s biggest rivals, JPMorgan Chase and Goldman Sachs.
On Tuesday, Morgan Stanley received a bit of a consolation prize when the Federal Reserve allowed the bank to set aside slightly less money in the name of safety.
The Fed’s decision related to the annual “stress tests” that it runs on the largest American banks. Begun after the 2007-8 global financial crisis, the exams have long been loathed by banks because they require lenders to sock away capital, or the money a bank maintains to ensure stability and provide a financial cushion against losses.
The less capital that banks must reserve, the more they have available to lend out or otherwise profitably invest — or so they argue.
In this year’s exams, the results of which were released over the summer, the Fed determined that Morgan Stanley was required to maintain a 5.1 percent buffer. The bank swiftly appealed that decision. On Tuesday, the buffer was reduced to 4.3 percent.
A Fed spokesman said in a statement that the change had been made after an analysis of information presented by Morgan Stanley showed that the bank’s lending portfolio was better able to weather potential trouble than earlier determined. Few other details were provided, by either the Fed or Morgan Stanley.
Although the stress tests have become a partisan issue, with Republicans generally siding with bank lobbyists in arguing that they unfairly hamstring the lenders, there was little indication of a split on this decision. A prominent left-leaning Fed governor, Michael S. Barr, said in a statement that he supported the reduction.
Goldman Sachs similarly won an appeal of its stress test in 2024.
Rob Copeland is a finance reporter for The Times, writing about Wall Street and the banking industry.
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