Morgan Stanley Bank receives Federal Reserve exemption from related-party transaction restrictions

Investing.com - The Federal Reserve Board announced on Thursday that it has made a joint determination with the Office of the Comptroller of the Currency, approving the exemption requested by Morgan Stanley Bank located in Salt Lake City, Utah, under Section 23A of the Federal Reserve Act. The bank submitted the application to facilitate an internal corporate restructuring with its affiliate, Morgan Stanley Europe SE, based in Frankfurt, Germany.

Section 23A sets limits and imposes requirements on transactions between banks and their affiliates. This exemption allows Morgan Stanley Bank to acquire Morgan Stanley Europe SE and its wholly-owned subsidiary, Morgan Stanley Bank AG in Germany, as part of a one-time internal corporate restructuring. As of September 30, 2025, the value of restricted transactions related to the restructuring amounts to billions of dollars, exceeding the quantitative limits set by Section 23A for transactions with a single affiliate and with all affiliates combined.

Morgan Stanley Europe SE obtained approval from the European Central Bank on January 16, 2026, to convert into a European licensed bank, while also receiving approval for a change of control, authorizing Morgan Stanley Europe SE to become a subsidiary of Morgan Stanley Bank. On January 19, 2026, Morgan Stanley Europe SE completed its conversion and became a foreign bank. The business of Morgan Stanley Europe SE primarily includes the sales and trading of fixed income and equity products, investment banking, capital markets, and research.

The Federal Reserve Board believes that the proposed exemption is in the public interest and is consistent with the purposes of Section 23A. Morgan Stanley Bank is well-capitalized and will remain so after completing the acquisition. The bank has committed to ensuring that it can withstand losses if the quality of the assets acquired in connection with this proposal deteriorates.

Four board members opposed the decision. Vice Chair Philip N. Jefferson expressed a preference for the board to evaluate exemption requests through a rulemaking process with general applicability. Board member Michael S. Barr stated that the exemption allows foreign transactions and other non-bank activities to be funded by deposits insured by the Federal Deposit Insurance Corporation, bringing over $1.5 trillion of foreign non-bank activities into the federal safety net, and that other large banks that may seek similar exemptions could follow suit.

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