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Regulatory Requirements
 3 Months Ended
Mar. 31, 2018
Regulatory Requirements  
Regulatory Requirements

13. Regulatory Requirements

Regulatory Capital Framework and Requirements     

For a discussion of the Firm’s regulatory capital framework, see Note 14 to the financial statements in the 2017 Form 10-K.

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

The Firm’s risk-based capital ratios for purposes of determining regulatory compliance are the lower of the capital ratios computed under (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”).

Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital. Certain adjustments to and deductions from capital are required for purposes of determining these ratios, such as goodwill, intangible assets, certain deferred tax assets, other amounts in AOCI and investments in the capital instruments of unconsolidated financial institutions.

In addition to the minimum risk-based capital ratio requirements, by 2019 the Firm will be subject to the following buffers:

  • A greater than 2.5% Common Equity Tier 1 capital conservation buffer;

  • The Common Equity Tier 1 G-SIB capital surcharge, currently at 3%; and

  • Up to a 2.5% Common Equity Tier 1 CCyB, currently set by U.S. banking agencies at zero.

In 2017 and 2018, each of the buffers is 50% and 75%, respectively, of the 2019 requirement noted above. Failure to maintain the buffers will result in 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.

For a further discussion of the Firm’s calculation of risk-based capital ratios, see Note 14 to the financial statements in the 2017 Form 10-K.

The Firm’s Regulatory Capital and Capital Ratios

At March 31, 2018 and December 31, 2017, the Firm’s ratios are based on the Standardized Approach rules.

Regulatory Capital
At March 31, 2018
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$60,56815.5%8.6%
Tier 1 capital69,21317.7%10.1%
Total capital79,36320.3%12.1%
Total RWA390,390N/AN/A
Tier 1 leverage69,2138.2%4.0%
Adjusted average assets2846,868N/AN/A
SLR369,2136.3%5.0%
Supplementary leverage exposure1,091,518N/AN/A
At December 31, 2017
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$61,13416.5%7.3%
Tier 1 capital69,93818.9%8.8%
Total capital80,27521.7%10.8%
Total RWA369,578N/AN/A
Tier 1 leverage69,9388.3%4.0%
Adjusted average assets2842,270N/AN/A

  • Percentages represent minimum required regulatory capital ratios under the transitional rules. Regulatory compliance was determined based on capital ratios calculated under the transitional rules until December 31, 2017.
  • Adjusted average assets represent the denominator of the Tier 1 leverage ratio and are composed of the average daily balance of consolidated on-balance sheet assets under U.S. GAAP during the current quarter and the quarter ended December 31, 2017, respectively, adjusted for disallowed goodwill, intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other adjustments
  • The SLR became effective as a capital standard on January 1, 2018.

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

The Firm’s U.S. Bank Subsidiaries are subject to similar regulatory capital requirements as the Firm. Failure to meet minimum capital requirements can initiate 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. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each of the U.S. Bank Subsidiaries must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

Each U.S. depository institution subsidiary of the Firm must be well-capitalized in order for the Firm to continue to qualify as a financial holding company and to continue to engage in the broadest range of financial activities permitted for financial holding companies. Under regulatory capital requirements adopted by the U.S. federal banking agencies, U.S. depository institutions must maintain certain minimum capital ratios in order to be considered well-capitalized. At March 31, 2018 and December 31, 2017, the Firm’s U.S. Bank Subsidiaries maintained capital at levels sufficiently in excess of the universally mandated well-capitalized requirements to address any additional capital needs and requirements identified by the U.S. federal banking regulators.

At March 31, 2018 and December 31, 2017, the U.S. Bank Subsidiaries’ ratios are based on the Standardized Approach rules.

MSBNA’s Regulatory Capital
At March 31, 2018
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$15,51419.7%6.5%
Tier 1 capital15,51419.7%8.0%
Total capital15,78520.1%10.0%
Tier 1 leverage15,51411.8%5.0%
SLR29.0%6.0%
At December 31, 2017
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$15,19620.5%6.5%
Tier 1 capital15,19620.5%8.0%
Total capital15,45420.8%10.0%
Tier 1 leverage15,19611.8%5.0%

MSPBNA’s Regulatory Capital
At March 31, 2018
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$6,38224.2%6.5%
Tier 1 capital6,38224.2%8.0%
Total capital6,42524.4%10.0%
Tier 1 leverage6,3829.7%5.0%
SLR29.3%6.0%
At December 31, 2017
$ in millionsAmountRatioRequired Ratio1
Common Equity Tier 1 capital$6,21524.4%6.5%
Tier 1 capital6,21524.4%8.0%
Total capital6,25824.6%10.0%
Tier 1 leverage6,2159.7%5.0%

  • Ratios that are required in order to be considered well-capitalized for U.S. regulatory purposes. Regulatory compliance was determined based on capital ratios calculated under the transitional rules until December 31, 2017.
  • The SLR became effective as a capital standard on January 1, 2018.

U.S. Broker-Dealer Regulatory Capital Requirements
MS&Co. Regulatory Capital
$ in millionsAt March 31, 2018At December 31, 2017
Net capital$12,661$10,142
Excess net capital10,3038,018

MS&Co. is a registered U.S. broker-dealer and registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the SEC and the CFTC. MS&Co. has consistently operated with capital in excess of its regulatory capital requirements.

As an Alternative Net Capital broker-dealer, and in accordance with the market and credit risk standards of Appendix E of SEC Rule 15c3-1, MS&Co. is subject to minimum net capital and tentative net capital requirements. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At March 31, 2018 and December 31, 2017, MS&Co. has exceeded its net capital requirement and has tentative net capital in excess of the minimum and notification requirements.

MSSB LLC Regulatory Capital
$ in millionsAt March 31, 2018At December 31, 2017
Net capital$2,919$2,567
Excess net capital2,7592,400

MSSB LLC is a registered U.S. broker-dealer and introducing broker for the futures business and, accordingly, is subject to the minimum net capital requirements of the SEC. MSSB LLC has consistently operated with capital in excess of its regulatory capital requirements.

Other Regulated Subsidiaries    

MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the PRA, and MSMS, a Tokyo-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Agency. MSIP and MSMS have consistently operated with capital in excess of their respective regulatory capital requirements.

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 consistently operated with capital in excess of their local capital adequacy requirements.