U.S. Sen. Elizabeth Warren (D-MA) urged banking regulators to reconsider their decision to allow Morgan Stanley to use American taxpayer deposits to subsidize risky financial activities in Europe.
Warren, the ranking member of the Senate Banking, Housing and Urban Affairs Committee, said in a letter to Michelle Bowman, Vice Chair for Supervision for the Federal Reserve (Fed), Comptroller Jonathan Gould from the Office of the Comptroller of the Currency (OCC), and Travis Hill, Chairman of the Federal Deposit Insurance Corporation (FDIC), their special exemption to Morgan Stanley was not in the best interest of American taxpayers and should be revoked.
“This exemption violates federal law, diverts deposits away from domestic lending for businesses and households in the United States, and needlessly exposes our country’s banking system to risks in European financial markets. The exemption should be immediately revoked. In addition, I am requesting information from your agencies to better understand this decision,” Warren wrote.
Warren said Morgan Stanley decided recently to restructure its operations so that its taxpayer insured bank could acquire a European trading affiliate “Morgan Stanley Europe SE” and a “wholly owned subsidiary German bank, Morgan Stanley Bank AG,” in a “one-time internal corporate reorganization. The $85 billion transaction, she wrote, exceeds the statutory limitations of the Federal Reserve Act. That legislation limits the amount of covered transactions that can occur between a bank and any single affiliate, as well as the amount of covered transactions between a bank and all of its affiliates.
“A closer look at Morgan Stanley’s proposal only confirms that the bank’s proposed transaction fails both prongs of the 23A exemption test. First, the transaction does not appear to be in the public interest,” the Senator wrote. “The banking agencies have previously defined the public interest as ‘assuring the safety and soundness of the banks, protecting the deposit insurance fund, and limiting the extension of the federal safety net.’ Yet Morgan Stanley’s foreign affiliate nonbank activities, such as trading and investment banking, are highly risky. Bringing them into the insured bank could threaten the safety and soundness of the banking system and increase risks to the Deposit Insurance Fund.”
Warren called on bank regulators to immediately revoke their special exemption to allow Morgan Stanley to acquire the German bank, and to provide her with information pertaining to their decisions to allow the exemption by June 3, 2026.