Morgan Stanley 2009 Annual Report Download - page 193

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. Regulatory Requirements.
Morgan Stanley. In September 2008, the Company became a financial holding company under the Bank
Holding Company Act subject to the regulation and oversight of the Board of Governors of the Federal Reserve
System (the “Fed”). The Fed establishes capital requirements for the Company, including well-capitalized
standards, and evaluates the Company’s compliance with such capital requirements. The Office of the
Comptroller of the Currency and the Office of Thrift Supervision establish similar capital requirements and
standards for the Company’s national banks and federal savings bank, respectively.
The Company calculates its capital ratios and risk-weighted assets (“RWAs”) in accordance with the capital
adequacy standards for financial holding companies adopted by the Fed. These standards are based upon a
framework described in the “International Convergence of Capital Measurement and Capital Standards,” July
1988, as amended, also referred to as Basel I. In December 2007, the U.S. banking regulators published a final
Basel II Accord that requires internationally active banking organizations, as well as certain of its U.S. bank
subsidiaries, to implement Basel II standards over the next several years. The Company will be required to
implement these Basel II standards as a result of becoming a financial holding company.
As of December 31, 2009, the Company was in compliance with Basel I capital requirements with ratios of Tier
1 capital to RWAs of 15.3% and total capital to RWAs of 16.4% (6% and 10% being well-capitalized for
regulatory purposes, respectively). In addition, financial holding companies are also subject to a Tier 1 leverage
ratio as defined by the Fed. The Company calculated its Tier 1 leverage ratio as Tier 1 capital divided by adjusted
average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets and deferred
tax assets). The adjusted average total assets are derived using weekly balances for the calendar quarter. This
ratio as of December 31, 2009 was 5.8%.
The following table summarizes the capital measures for the Company at December 31, 2009:
December 31, 2009
Balance Ratio
(dollars in millions)
Tier 1 capital ................................................................. $ 46,670 15.3%
Total capital ................................................................. 49,955 16.4%
RWAs ...................................................................... 305,000 —
Adjusted average assets ........................................................ 804,456 —
Tier 1 leverage ............................................................... — 5.8%
The Company’s Significant U.S. Bank Operating Subsidiaries. The Company’s domestic bank operating
subsidiaries are subject to various regulatory capital requirements as administered by U.S. federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional,
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s U.S.
bank operating subsidiaries’ financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company’s U.S. bank operating subsidiaries must meet specific
capital guidelines that involve quantitative measures of the Company’s U.S. bank operating subsidiaries’ assets,
liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.
As of December 31, 2009, the Company’s U.S. bank operating subsidiaries met all capital adequacy requirements
to which they are subject.
As of December 31, 2009, the Company’s U.S. bank operating subsidiaries exceeded all regulatorily mandated
and targeted minimum regulatory capital requirements to be well-capitalized. There are no conditions or events
that management believes have changed the Company’s U.S. bank operating subsidiaries’ category.
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