Morgan Stanley redirected capital released by recent U.S. regulatory changes into its trading operations during the first quarter, the firm's Chief Financial Officer, Sharon Yeshaya, said in an interview.
Yeshaya said the bank allocated the funds to its prime brokerage and macro trading desks after regulators eased the enhanced supplementary leverage ratio, a capital requirement that market participants had argued constrained their capacity to intermediate in the U.S. Treasuries market during times of stress.
"The idea was that banks would provide more liquidity in the Treasury and agency markets," Yeshaya said. "That’s what we did." She also confirmed there was "absolutely" a connection between the rule change and the firm’s investment in its trading operations.
The regulatory relief followed a series of proposals from U.S. financial regulators after the change in administration in early 2025. The Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. finalized revisions to the supplementary leverage ratio in November, and then introduced an additional package of proposals last month.
Morgan Stanley was identified by the firm as the only major Wall Street bank for which the SLR served as the binding constraint, meaning the bank had the least buffer against that requirement relative to other capital rules. At the end of the first quarter the firm’s SLR was 5%, down from 5.4% at year-end.
The bank’s decision to redeploy capital to prime brokerage and macro trading reflects an operational choice tied directly to the changed regulatory landscape, according to Yeshaya. The move is portrayed as enabling the bank to act more actively as an intermediary in Treasury and agency markets, consistent with the regulators’ stated intent for the rule adjustments.
Summary
Morgan Stanley used capital freed by eased SLR requirements to boost funding for its prime brokerage and macro trading desks in Q1. CFO Sharon Yeshaya confirmed the link between the regulatory relief and the firm’s investment choices, and provided the bank’s SLR figures for year-end and quarter-end.
Key points
- Morgan Stanley allocated capital made available after an easing of the enhanced supplementary leverage ratio into prime brokerage and macro trading operations.
- The bank’s SLR was 5% at the end of the first quarter, down from 5.4% at year-end.
- Regulatory actions by the Federal Reserve, the OCC and the FDIC included finalized SLR revisions in November and an additional proposal package introduced last month, following proposals issued since early 2025.
Risks and uncertainties
- Changes to capital requirements and further regulatory proposals could alter the amount of capital available for trading and prime brokerage activities, affecting how banks allocate resources - impacting the banking and financial services sectors.
- If market conditions in Treasury and agency markets evolve unfavorably, the effectiveness of redeployed capital in supporting market intermediation may be uncertain - impacting fixed income market liquidity.