Fed and OCC Announce Joint Finding for Morgan Stanley Bank Exemption

The Federal Reserve Board has announced that it has completed joint findings with the Office of the Comptroller of the Currency (OCC), fulfilling the regulatory prerequisite for the OCC to approve Morgan Stanley Bank, N.A.'s application for an exemption under Section 23A of the Federal Reserve Act. The announcement marks the effective conclusion of the legal process required for the exemption.

What Is Section 23A?

Section 23A of the Federal Reserve Act is a foundational banking regulation that places strict limitations on 'covered transactions' between a member bank and its affiliates. The rule is designed to prevent banks from using depositor funds to benefit affiliated entities or to create conflict-of-interest structures. It imposes aggregate caps and collateral requirements on a range of financial activities including loans, asset purchases, and guarantees extended to affiliates.

The exemption would allow Morgan Stanley Bank to conduct certain transactions with its affiliates beyond these standard limitations — a move that regulators have determined does not threaten the bank's safety and soundness.

Why This Decision Matters

The joint determination carries significance beyond a single bank's regulatory relief. Morgan Stanley operates as a diversified financial conglomerate encompassing banking, securities, and asset management divisions, with ongoing demand for efficient interaffiliate financial flows.

Notably, the OCC serves as the primary regulator for national banks, but a joint determination with the Fed is legally required before a Section 23A exemption can be granted. Wednesday's announcement confirms that this threshold has been officially met.

Industry observers note that while Section 23A exemptions are not unprecedented, approvals at the scale of a major complex financial group like Morgan Stanley tend to set reference points for broader regulatory practice.