Morgan Stanley requests the Federal Reserve to lower bank capital requirements, with a decision to be announced before September 30

According to the Zhitong Finance APP, the Federal Reserve revealed that Morgan Stanley (MS.US) has requested to lower its capital requirements when announcing the capital requirements that most banks on Wall Street are about to implement (which are generally in line with banks' expectations). In a statement on Friday, the Federal Reserve stated, "Morgan Stanley has applied for a reconsideration, hoping to lower this requirement," adding that "the Board is evaluating the company's application to reduce the Stress Capital Buffer (SCB) requirement and plans to make a decision and announce it by September 30."

This statement from the Federal Reserve formally concludes the annual stress testing process, which consists of multiple steps aimed at assessing the risk resilience of large U.S. banks under hypothetical economic scenarios. The tests ultimately update the Common Equity Tier 1 (CET1) capital ratio requirements for each bank, which will take effect on October 1.

"Morgan Stanley is actively communicating with the Federal Reserve to determine the final Stress Capital Buffer requirement before October 1," the New York-based bank stated.

The Federal Reserve did not specify the extent to which Morgan Stanley requested to lower its capital requirements. Last month, Morgan Stanley indicated that based on the stress test results, it expects its Common Equity Tier 1 capital ratio requirement to decrease from the current 13.5% to 12.6%.

A total of 22 banks, including Morgan Stanley, participated in this year's Federal Reserve stress tests, all of which passed easily—test results showed that these banks could withstand losses exceeding $550 billion. The capital requirements linked to the tests announced on Friday consist of several components, including a uniform minimum Common Equity Tier 1 capital ratio requirement of 4.5% applicable to all banks, as well as the Stress Capital Buffer requirement. Additionally, institutions classified as "Globally Systemically Important Banks" must meet additional capital requirements.

As the Federal Reserve issued this statement, the banking industry is awaiting the final results of its stress testing process reforms. In April of this year, the Federal Reserve announced a proposal to adopt a "two-year average" calculation method when setting capital requirements. Michelle Bowman, the Federal Reserve's Vice Chair for Supervision, previously stated that such potential reforms would help the Federal Reserve address the issue of "excessive volatility in stress test results and corresponding capital requirements."

"The capital requirements announced today reflect the characteristics of the current transitional phase," Bowman stated in the announcement, adding that finalizing the reform proposal put forward in April will be an important next step in "reducing year-on-year volatility in bank capital requirements."

In addition, the Federal Reserve also announced plans to lower the "Enhanced Supplementary Leverage Ratio" (ESLR)—a ratio that requires banks to hold a certain amount of capital based on their asset size. At the same time, the Federal Reserve will advance a new "risk-based capital plan" proposal, which has been advocated by Wall Street