The only U.S. megabank to stumble in last year’s round of stress tests has now cleared them, the Federal Reserve announced Thursday.
The central bank said it “will not object” to a resubmitted plan from Morgan Stanley for paying out shareholders, meaning that the bank is clear of the annual stress test imposed by regulators to try to ensure the safety of the financial system.
Morgan Stanley had been the only U.S. megabank to be told in June, when the stress test results were announced, to resubmit its plans because of problems revealed by the tests. Those problems, which the Fed required the bank to address in a resubmitted test that was due in December, involved the bank’s capital planning and its scenario modeling.
The bank did not immediately respond to a request for comment.
The Fed’s analysis released Thursday showed that, in a hypothetical financial crisis, the bank’s capital, measured against a broad definition of assets, would drop from 8 percent in 2016 to 4 percent at minimum — right at the Fed’s minimum requirement.
Regulators have said the stress tests are among the most important tools at their disposal for ensuring financial system soundness in the wake of the financial crisis.
The industry has complained that the scenarios and requirements drawn up by regulators are too opaque and arbitrary. House Republicans are expected to introduce an overhaul package in coming weeks that would require the terms of the tests to be more clearly spelled out for banks with adequate capital levels.
