Regulatory Requirements

12 Months Ended

Dec. 31, 2021

Regulatory Capital Framework

The Firm is an FHC under the Bank Holding Company Act of 1956, as amended, and is subject to the regulation and oversight of the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Federal Reserve establishes capital requirements for the Firm, including “well-capitalized” standards, and evaluates the Firm’s compliance with such capital requirements. The OCC establishes similar capital requirements and standards for the Firm’s U.S. bank subsidiaries, including, among others, MSBNA and MSPBNA. The regulatory capital requirements are largely based on the Basel III capital standards established by the Basel Committee on Banking Supervision and also implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, many of the Firm’s regulated subsidiaries are subject to regulatory capital requirements, including regulated subsidiaries provisionally registered as swap dealers with the CFTC or conditionally registered as security-based swap dealers with the SEC or registered as broker-dealers or futures commission merchants.

Regulatory Capital Requirements

The Firm is required to maintain minimum risk-based and leverage-based capital ratios under regulatory capital requirements. A summary of the calculations of regulatory capital and RWA follows.

Risk-Based Regulatory Capital. Risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital), each as a percentage of RWA, and consist of regulatory minimum required ratios plus the Firm’s capital buffer requirement. Capital requirements require certain adjustments to, and

deductions from, capital for purposes of determining these ratios.

CECL Deferral. In 2020, the U.S. banking agencies adopted a final rule, consistent with an interim final rule that was effective March 31, 2020, altering, for purposes of the regulatory capital rules, the required adoption time period for CECL. As of December 31, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure are calculated excluding the effect of the adoption of CECL based on the Firm’s election to defer this effect over a five-year transition period that began on January 1, 2020 in accordance with the final rule. The deferral impacts begin to phase back in at 25% per year beginning in 2022 and become fully phased-in beginning in 2025.

Capital Buffer Requirements


	At December 31, 2021 and December 31, 2020
	Standardized	Advanced
Capital buffers
Capital conservation buffer	—	2.5%
SCB	5.7%	N/A
G-SIB capital surcharge	3.0%	3.0%
CCyB1	0%	0%
Capital buffer requirement	8.7%	5.5%

1.The CCyB can be set up to 2.5% but is currently set by the Federal Reserve at zero.

The capital buffer requirement represents the amount of Common Equity Tier 1 capital the Firm must maintain above the minimum risk-based capital requirements in order to avoid restrictions on the Firm’s ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers. The Firm’s Standardized Approach capital buffer requirement is equal to the sum of the SCB, G-SIB capital surcharge and CCyB, and the Advanced Approach capital buffer requirement is equal to the 2.5% capital conservation buffer, G-SIB capital surcharge and CCyB.

Risk-Based Regulatory Capital Ratio Requirements











			At December 31, 2021 and December 31, 2020
	Regulatory Minimum
			Standardized	Advanced
Required ratios1
Common Equity Tier 1 capital ratio	4.5	%	13.2%	10.0%
Tier 1 capital ratio	6.0	%	14.7%	11.5%
Total capital ratio	8.0	%	16.7%	13.5%

1.Required ratios represent the regulatory minimum plus the capital buffer requirement.

Risk-Weighted Assets

RWA reflects both the Firm’s on- and off-balance sheet risk, as well as capital charges attributable to the risk of loss arising from the following:

•Credit Risk: The failure of a borrower, counterparty or issuer to meet its financial obligations to the Firm;

•Market Risk: Adverse changes in the level of one or more market prices, rates, indices, volatilities, correlations or other market factors, such as market liquidity; and

•Operational Risk: Inadequate or failed processes or systems from human factors or from external events (e.g., fraud, theft, legal and compliance risks, cyber attacks or damage to physical assets).

The Firm’s risk-based capital ratios are computed under both (i) the standardized approaches for calculating credit risk and market risk RWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWA (“Advanced Approach”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At December 31, 2021 and December 31, 2020, the differences between the actual and required ratio were lower under the Standardized Approach.

Leverage-Based Regulatory Capital. Leverage-based capital requirements include a minimum Tier 1 leverage ratio of 4%, a minimum SLR of 3% and an enhanced SLR capital buffer of at least 2%.

The Firm’s Regulatory Capital and Capital Ratios



$ in millions	Required Ratio1		At December 31, 2021			At December 31, 2020
Risk-based capital
Common Equity Tier 1 capital			$	75,742		$	78,650
Tier 1 capital			83,348			88,079
Total capital			93,166			97,213
Total RWA2			471,921			453,106
Common Equity Tier 1 capital ratio	13.2	%	16.0		%	17.4		%
Tier 1 capital ratio	14.7	%	17.7		%	19.4		%
Total capital ratio	16.7	%	19.7		%	21.5		%

$ in millions	Required Ratio1		At December 31, 2021			At December 31, 2020
Leverage-based capital
Adjusted average assets3			$	1,169,939		$	1,053,510
Tier 1 leverage ratio	4.0	%	7.1		%	8.4		%
Supplementary leverage exposure4, 5			$	1,476,962		$	1,192,506
SLR5	5.0	%	5.6		%	7.4		%

1.Required ratios are inclusive of any buffers applicable as of the date presented.

2.The Firm early adopted the Standardized Approach for Counterparty Credit Risk (“SA-CCR”) on December 1, 2021. SA-CCR replaced the current exposure method used to measure derivatives counterparty exposure within the Standardized Approach RWA and Supplementary Leverage Ratio exposure calculations. As a result of the adoption, as of December 31, 2021, the Firm's risk-weighted assets under the Standardized Approach increased by $25 billion, and the Firm's Standardized Common Equity Tier 1 capital ratio decreased by 90 basis points.

3.Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidated on-balance sheet assets for the quarters ending on the respective balance sheet dates, reduced by disallowed goodwill, intangible assets, investments in covered funds, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in the Firm’s own capital instruments, certain defined tax assets and other capital deductions.

4.Supplementary leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily: (i) for derivatives, potential future exposure and the effective notional principal amount of sold credit protection, offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount for off-balance sheet exposures.

5.The Firm’s SLR and Supplementary leverage exposure as of December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks based on a Federal Reserve interim final rule that was in effect until March 31, 2021.

Certain U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios

The OCC establishes capital requirements for the Firm’s U.S. bank subsidiaries, which as of December 31, 2021 and December 31, 2020 include, among others, Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”), and evaluates their compliance with such capital requirements. Regulatory capital requirements for MSBNA and MSPBNA are calculated in a similar manner to the Firm’s regulatory capital requirements, although G-SIB capital surcharge and SCB requirements do not apply to the U.S. bank subsidiaries.

The OCC’s regulatory capital framework includes Prompt Corrective Action (“PCA”) standards, including “well-capitalized” PCA standards that are based on specified regulatory capital ratio minimums. For the Firm to remain an FHC, its U.S. bank subsidiaries must remain well-capitalized in accordance with the OCC’s PCA standards. In addition, failure by the U.S. bank subsidiaries to meet minimum capital requirements may result in certain mandatory and discretionary actions by regulators that, if undertaken, could

have a direct material effect on the U.S. bank subsidiaries’ and the Firm’s financial statements.

At December 31, 2021 and December 31, 2020, MSBNA and MSPBNA risk-based capital ratios are based on the Standardized Approach rules. At December 31, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios are calculated excluding the effect of the adoption of CECL based on MSBNA’s and MSPBNA’s election to defer this effect over a five-year transition period, which began on January 1, 2020. The deferral impacts begin to phase back in at 25% per year beginning in 2022 and become fully phased-in beginning in 2025.

MSBNA’s Regulatory Capital1


	Well-Capitalized Requirement		Required Ratio2		At December 31, 2021				At December 31, 2020
$ in millions					Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	18,960	20.5	%	$	17,238	18.7	%
Tier 1 capital	8.0	%	8.5	%	18,960		20.5	%	17,238		18.7	%
Total capital	10.0	%	10.5	%	19,544		21.1	%	17,882		19.4	%
Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	185,120	10.2	%	$	17,238	10.1	%
SLR	6.0	%	3.0	%	233,358		8.1	%	17,238		8.0	%

MSPBNA’s Regulatory Capital1


	Well-Capitalized Requirement		Required Ratio2		At December 31, 2021				At December 31, 2020
$ in millions					Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	10,293	24.3	%	$	8,213	21.3	%
Tier 1 capital	8.0	%	8.5	%	10,293		24.3	%	8,213		21.3	%
Total capital	10.0	%	10.5	%	10,368		24.5	%	8,287		21.5	%




Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	149,375	6.9	%	$	8,213	7.2	%
SLR	6.0	%	3.0	%	153,810		6.7	%	8,213		6.9	%

1.MSBNA and MSPBNA early adopted SA-CCR on December 1, 2021. The adoption did not have a material impact on either of the bank's capital ratios or SLR.

2.Required ratios are inclusive of any buffers applicable as of the date presented. Failure to maintain the buffers would result in restrictions on the ability to make capital distributions, including the payment of dividends.

Additionally, MSBNA is conditionally registered with the SEC as a security-based swap dealer and is provisionally registered with the CFTC as a swap dealer. However, as MSBNA is prudentially regulated as a bank, its capital requirements continue to be determined by its banking regulators.

Other Regulatory Capital Requirements

MS&Co. Regulatory Capital


$ in millions	At December 31, 2021		At December 31, 2020
Net capital	$	18,383	$	12,869
Excess net capital	14,208		9,034

MS&Co. is registered as a broker-dealer and a futures commission merchant with the SEC and the CFTC,

respectively, and provisionally registered as a swap dealer with the CFTC.

As an Alternative Net Capital broker-dealer, and in accordance with Securities Exchange Act of 1934 (“Exchange Act”) Rule 15c3-1, Appendix E, MS&Co. is subject to minimum net capital and tentative net capital requirements and operates with capital in excess of its regulatory capital requirements. As a futures commission merchant and provisionally-registered swap dealer, MS&Co. is subject to CFTC capital requirements. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At December 31, 2021 and December 31, 2020, MS&Co. exceeded its net capital requirement and had tentative net capital in excess of the minimum and notification requirements.

Other Regulated Subsidiaries

The following subsidiaries are also subject to various regulatory capital requirements and operated with capital in excess of their respective regulatory capital requirements as of December 31, 2021 and December 31, 2020, as applicable:

•MSSB, a registered U.S. broker-dealer and introducing broker for the futures business, is subject to, respectively, the minimum net capital requirements of the SEC and CFTC capital requirements.

•MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the PRA. MSIP is also conditionally registered with the SEC as a security-based swap dealer and provisionally registered with the CFTC as a swap dealer, but is currently complying with home-country capital requirements in lieu of SEC and CFTC capital requirements pursuant to applicable substituted compliance rules and interim no-action relief.

•Morgan Stanley Europe Holdings SE Group (“MSEHSE Group”), including MSESE, a Germany-based broker-dealer, is subject to the capital requirements of the European Central Bank, BaFin and the German Central Bank. MSESE is also conditionally registered with the SEC as a security-based swap dealer and provisionally registered with the CFTC as a swap dealer, but is currently complying with home-country capital requirements in lieu of SEC and CFTC capital requirements pursuant to interim no-action relief.

•MSMS, a Tokyo-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Agency. MSMS is also provisionally registered with the CFTC as a swap dealer but is currently complying with home-country capital requirements in lieu of CFTC capital requirements pursuant to interim no-action relief.

•MSCS, a U.S. entity and the Firm’s primary non-bank security-based swap dealer, is conditionally registered with the SEC as a security-based swap dealer, registered with the SEC as an OTC derivatives dealer and provisionally registered with the CFTC as a swap dealer. MSCS is subject to the capital requirements of both regulators.

•MSCG, a U.S. entity, is provisionally registered with the CFTC as a swap dealer and is subject to its capital requirements.

•E*TRADE Bank and E*TRADE Savings Bank are subject to the capital requirements of the OCC. For additional information on E*TRADE Bank and E*TRADE Savings Bank, see Note 1.

•E*TRADE Securities LLC, a registered broker-dealer, is subject to the minimum net capital requirements of the SEC.

Certain other U.S. and non-U.S. subsidiaries of the Firm are subject to various securities, commodities and banking regulations, and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have also consistently operated with capital in excess of their local capital adequacy requirements.

Restrictions on Payments

The regulatory capital requirements referred to above, and certain covenants contained in various agreements governing indebtedness of the Firm, may restrict the Firm’s ability to withdraw capital from its subsidiaries. The following table represents net assets of consolidated subsidiaries that may be restricted as to the payment of cash dividends and advances to the Parent Company.


$ in millions	At December 31, 2021		At December 31, 2020
Restricted net assets	$	49,516	$	40,502

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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