Banking and Finance Law Daily Wrap Up, BANK HOLDING COMPANIES—Fed, OCC exempt internal corporate reorganization from FRA Section 23A, (Jan 30, 2026)

By Nadine E. Roddy, J.D.

Both agencies find that a bank’s proposed reorganization is in the public interest and consistent with the purposes of Section 23A.

In a letter dated December 12, 2025 to the Comptroller of the Currency, the Federal Reserve Board addressed the request of Morgan Stanley Bank, N.A. Salt Lake City, Utah (the Bank) for an exemption from certain requirements of Section 23A of the Federal Reserve Act (FRA) to acquire the fixed income derivatives business of Morgan Stanley Capital Services LLC (MSCS), New York, New York. The Bank and MSCS are both indirect, wholly-owned subsidiaries of Morgan Stanley, New York, New York, a financial holding company. As part of a one-time internal corporate reorganization, Morgan Stanley would separate the fixed income derivatives business of MSCS into a separate company, MSCS FID, and would retain MSCS’s existing institutional equities business in MSCS. Morgan Stanley would then immediately merge MSCS FID with and into the Bank. As a result of the reorganization, the Bank would acquire the assets, and would assume the liabilities, of MSCS FID, and pay no additional consideration in connection with the transaction.

Covered transaction. The letter notes that Section 23A defines the term affiliate to include “any other company that is controlled by the company that controls the member bank.” The Bank and MSCS FID are both controlled by Morgan Stanley and are therefore affiliates for purposes of Section 23A. That section and the Fed’s Regulation W limit the amount of covered transactions between a bank and any single affiliate to 10 percent of the bank’s capital stock and surplus, and limit the amount of covered transactions between a bank and all its affiliates to 20 percent of the bank’s capital stock and surplus. Further, Section 23A defines a covered transaction to include, among other things, a bank’s “purchase of assets from the affiliate.” Regulation W defines the purchase of an asset from an affiliate as the acquisition of an asset from an affiliate in exchange for cash or any other consideration, including an assumption of liabilities. The merger of an affiliate into a bank is a purchase of assets by the bank from an affiliate if the bank assumes any liabilities of the affiliate or pays any other form of consideration in the transaction. Accordingly, the Bank’s proposed acquisition of MSCS FID by merger is a purchase of assets from an affiliate, and is thus a covered transaction subject to Section 23A.

Exemption. Concerning the Bank’s request for exemption, the letter explained that because the Bank is a national bank, the Office of the Comptroller of the Currency may, by order, exempt the proposed asset purchase from Section 23A’s requirements if the Fed and the OCC jointly find the exemption to be (i) in the public interest and (ii) consistent with the purposes of section 23A. The Fed had previously approved exemptions under Section 23A for one-time asset transfers that were part of an internal corporate reorganization where the transaction was structured to ensure the quality of the transferred assets and to protect the bank from losses should the quality of the transferred assets deteriorate.

After considering the facts and circumstances, the Fed found that the proposed exemption was in the public interest and consistent with the purposes of Section 23A. The Fed’s action, however, was specifically conditioned on the Bank’s compliance with all the commitments and representations it had made in connection with its request. Any change in the facts or circumstances could result in a different conclusion or a revocation of the findings in the letter. The action was also specifically conditioned on the Bank’s receipt of all regulatory approvals required by the proposal and on compliance with any conditions imposed in connection with the approvals.

OCC letter. In Interpretive Letter #1189 dated December 19, 2025, the OCC reached the same conclusion, with the same conditions, for essentially the same reasons. In addition, the letter noted that the FDIC had informed the OCC that the exemption did not present an unacceptable risk to the Deposit Insurance Fund, and the FDIC did not object on the basis of the exemption presenting an unacceptable risk to the Deposit Insurance Fund within 60 days of that notification.

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