Regulatory Requirements

3 Months Ended

Mar. 31, 2022

Regulatory Capital Framework and Requirements

For a discussion of the Firm’s regulatory capital framework, see Note 17 to the financial statements in the 2021 Form 10-K.

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. At March 31, 2022 and December 31, 2021, the differences between the actual and required ratios were lower under the Standardized Approach.

CECL Deferral. As of December 31, 2021, the risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure were 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 2022 the deferral impacts began to phase in at 25% per year and will become fully phased-in beginning in 2025.

Capital Buffer Requirements


	At March 31, 2022 and December 31, 2021
	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


	Regulatory Minimum		At March 31, 2022 and December 31, 2021
			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.

The Firm’s Regulatory Capital and Capital Ratios



$ in millions	Required Ratio1		At March 31, 2022			At December 31, 2021
Risk-based capital
Common Equity Tier 1 capital			$	72,477		$	75,742
Tier 1 capital			80,121			83,348
Total capital			89,468			93,166
Total RWA			501,429			471,921
Common Equity Tier 1 capital ratio	13.2	%	14.5		%	16.0		%
Tier 1 capital ratio	14.7	%	16.0		%	17.7		%
Total capital ratio	16.7	%	17.8		%	19.7		%

$ in millions	Required Ratio1		At March 31, 2022			At December 31, 2021
Leverage-based capital
Adjusted average assets2			$	1,184,494		$	1,169,939
Tier 1 leverage ratio	4.0	%	6.8		%	7.1		%
Supplementary leverage exposure3			$	1,466,624		$	1,476,962
SLR	5.0	%	5.5		%	5.6		%

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

2.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.

3.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.

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

The OCC establishes capital requirements for the Firm’s U.S. bank subsidiaries, which includes Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”), and evaluates their compliance with such capital requirements. Regulatory capital requirements for the U.S. Bank Subsidiaries 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 March 31, 2022 and December 31, 2021, MSBNA and MSPBNA risk-based capital ratios are based on the Standardized Approach rules. As of December 31, 2021, the risk-based and leverage-based capital amounts and ratios were

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 that began on January 1, 2020. In 2022 the deferral impacts began to phase in at 25% per year and will become fully phased-in beginning in 2025.

MSBNA’s Regulatory Capital


	Well-Capitalized Requirement		Required Ratio1		At March 31, 2022				At December 31, 2021
$ in millions					Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	18,386	18.7	%	$	18,960	20.5	%
Tier 1 capital	8.0	%	8.5	%	18,386		18.7	%	18,960		20.5	%
Total capital	10.0	%	10.5	%	18,961		19.3	%	19,544		21.1	%
Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	18,386	9.3	%	$	18,960	10.2	%
SLR	6.0	%	3.0	%	18,386		7.4	%	18,960		8.1	%

MSPBNA’s Regulatory Capital


	Well-Capitalized Requirement		Required Ratio1		At March 31, 20222				At December 31, 2021
$ in millions					Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	15,142	29.4	%	$	10,293	24.3	%
Tier 1 capital	8.0	%	8.5	%	15,142		29.4	%	10,293		24.3	%
Total capital	10.0	%	10.5	%	15,237		29.6	%	10,368		24.5	%




Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	15,142	7.4	%	$	10,293	6.9	%
SLR	6.0	%	3.0	%	15,142		7.3	%	10,293		6.7	%

1.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.

2.Regulatory capital amounts and ratios as of March 31, 2022 include the amounts from E*TRADE Bank (“ETB”) and E*TRADE Savings Bank (“ETSB”) as a result of the merger described herein.

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 March 31, 2022		At December 31, 2021
Net capital	$	16,799	$	18,383
Excess net capital	12,261		14,208

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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, as applicable:

•MSSB,

•MSIP,

•Morgan Stanley Europe Holdings SE Group, including MSESE,

•MSMS,

•MSCS,

•MSCG, and

•E*TRADE Securities LLC.

ETB and ETSB were each previously subject to the capital requirements of the OCC until January 1, 2022, when ETSB merged with and into ETB, and subsequently ETB merged with and into MSPBNA, with MSPBNA as the surviving bank.

See Note 17 to the financial statements in the 2021 Form 10-K for further information.

- 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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