Regulatory Requirements

9 Months Ended

Sep. 30, 2019

Brokers and Dealers [Abstract]

Regulatory Requirements

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 2018 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, RWA and transition provisions follows.

Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital). Capital standards require certain adjustments to, and deductions from, capital for purposes of determining these ratios.

In addition to the minimum risk-based capital ratio requirements, the Firm is subject to the following buffers in 2019:

• 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 2018, each of these buffers was 75% of the fully phased-in 2019 requirement noted above. Failure to maintain the buffers would 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.

The Firm’s Regulatory Capital and Capital Ratios

	At September 30, 2019
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	10.0	%	$	64,348	16.3	%
Tier 1 capital	11.5	%	72,937		18.5	%
Total capital	13.5	%	82,661		20.9	%
Total RWA			394,875
Leverage-based capital
Tier 1 leverage	4.0	%	$	72,937	8.2	%
Adjusted average assets2			892,912
SLR	5.0	%	72,937		6.3	%
Supplementary leverage exposure3			1,155,497

	At December 31, 2018
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	8.6	%	$	62,086	16.9	%
Tier 1 capital	10.1	%	70,619		19.2	%
Total capital	12.1	%	80,052		21.8	%
Total RWA			367,309
Leverage-based capital
Tier 1 leverage	4.0	%	$	70,619	8.4	%
Adjusted average assets2			843,074
SLR	5.0	%	70,619		6.5	%
Supplementary leverage exposure3			1,092,672

1. Required ratios are inclusive of any buffers applicable as of the date presented. For 2018, the minimum required regulatory capital ratios for risk-based capital are under the transitional rules.

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 during the quarters ended September 30, 2019 and December 31, 2018, 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 deferred 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.

At September 30, 2019 and December 31, 2018, the Firm’s risk-based capital ratios are based on the Standardized Approach rules.

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

The OCC establishes capital requirements for the Firm’s 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 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, the 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 September 30, 2019 and December 31, 2018, the U.S. Bank Subsidiaries’ risk-based capital ratios are based on the Standardized Approach rules, and in each period, the ratios exceeded well-capitalized requirements.

MSBNA’s Regulatory Capital

	At September 30, 2019
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	$	16,641	19.9	%
Tier 1 capital	8.0	%	16,641		19.9	%
Total capital	10.0	%	16,953		20.3	%
Leverage-based capital
Tier 1 leverage	5.0	%	$	16,641	11.9	%
SLR	6.0	%	16,641		9.2	%

	At December 31, 2018
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	$	15,221	19.5	%
Tier 1 capital	8.0	%	15,221		19.5	%
Total capital	10.0	%	15,484		19.8	%
Leverage-based capital
Tier 1 leverage	5.0	%	$	15,221	10.5	%
SLR	6.0	%	15,221		8.2	%

MSPBNA’s Regulatory Capital 

	At September 30, 2019
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	$	8,281	27.3	%
Tier 1 capital	8.0	%	8,281		27.3	%
Total capital	10.0	%	8,331		27.5	%
Leverage-based capital
Tier 1 leverage	5.0	%	$	8,281	10.8	%
SLR	6.0	%	8,281		10.3	%

	At December 31, 2018
$ in millions	Required Ratio1		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	$	7,183	25.2	%
Tier 1 capital	8.0	%	7,183		25.2	%
Total capital	10.0	%	7,229		25.4	%
Leverage-based capital
Tier 1 leverage	5.0	%	$	7,183	10.0	%
SLR	6.0	%	7,183		9.6	%

1. Ratios that are required in order to be considered well-capitalized for U.S. regulatory purposes.

U.S. Broker-Dealer Regulatory Capital Requirements

MS&Co. Regulatory Capital

$ in millions	At September 30, 2019		At December 31, 2018
Net capital	$	13,358	$	13,797
Excess net capital	10,453		11,333

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 September 30, 2019 and December 31, 2018, 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 millions	At September 30, 2019		At December 31, 2018
Net capital	$	3,772	$	3,455
Excess net capital	3,634		3,313

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.