Morgan Stanley’s financial chief believes the investment bank will see its capital requirements stay level or decrease slightly following revisions to federal banking regulations, marking a victory for the financial institution’s extensive lobbying campaign.
Chief Financial Officer Sharon Yeshaya shared this assessment with Reuters following the bank’s quarterly earnings announcement, noting the potential for what she called a “neutral to modestly positive” capital release under the updated rules.
“We expect, or would think that right now, we’d be neutral to modestly positive in terms of a capital release. But the exact math of that will really depend on certain clarifications and what comes out of the final model proposals,” Yeshaya explained after the earnings disclosure.
The Federal Reserve announced last month that major banks would see reduced capital level requirements under revised versions of Basel III regulations and global systemically important bank surcharge rules, potentially freeing up billions for loans, shareholder dividends, and stock repurchases.
Yeshaya indicated that while updated Basel proposals might increase Morgan Stanley’s risk-weighted assets, modifications to surcharges applied to globally important banks would prove “noticeably positive.” She said this buffer would drop from 3.5% to approximately 2.2%.
The banking executive noted that regulatory changes affecting how short-term wholesale funding gets treated under global bank surcharges should benefit both Morgan Stanley and competitor Goldman Sachs.
She praised the Fed’s comprehensive approach to evaluating capital regulations, including modifications to annual stress testing procedures, saying “is something that has helped us.”
Morgan Stanley exceeded Wall Street profit projections for the first quarter on Wednesday, benefiting from increased dealmaking activity and achieving record equities trading revenue. The strong performance sent share prices climbing roughly 6%.
These regulatory changes represent the outcome of years of Wall Street advocacy to modify rules implemented following the 2008 financial crisis. Banks have argued these regulations are overly restrictive and harm lending and economic growth.
Yeshaya, who assumed the CFO role in 2021 after leading investor relations, has emerged as one of Morgan Stanley’s most knowledgeable executives regarding capital regulations and has actively participated in lobbying efforts, according to public documentation.
The investment bank allocated $5 million toward Washington lobbying activities in 2024, representing its highest annual spending on such efforts, transparency group OpenSecrets reported.
Federal Reserve meeting records show Yeshaya, frequently accompanied by other Morgan Stanley leadership, held at least twelve meetings with central bank officials including governors Michelle Bowman, Christopher Waller, and Jerome Powell, plus Fed staff members. These discussions began after Governor Michael Barr introduced initial proposals in 2023 that would have significantly increased capital requirements.
During these sessions, bank representatives addressed Basel regulations and specific concerns including wholesale funding’s impact on global bank surcharges, rule interactions, and annual stress testing procedures, according to official records. Yeshaya also presented at a capital conference organized by Bowman last year.
The CFO, who started her 25-year Morgan Stanley career as a summer intern in 2000, is considered by some within the organization as a potential future chief executive.
Speaking during Wednesday’s earnings discussion, Yeshaya said banks would continue providing regulatory feedback and acknowledged possible future adjustments, but added “not everyone’s going to get everything they want.”
