By Neil Roland ( March 27, 2026, 02:37 GMT | Insight) -- An unusually divided US Federal Reserve voted to approve the acquisition of Morgan Stanley’s German-based securities and foreign trading unit by the banking giant’s New York-based national bank. The internal reorganization was ratified as an exemption from section 23A of the 2002 Federal Reserve Act — the largest such exemption granted outside of a financial crisis, said Fed Governor Michael Barr, who dissented. Section 23A seeks to protect banks from losses tied to affiliate transactions, and prevent banks from passing along the subsidy from access to the federal safety net to their affiliates.An unusually divided US Federal Reserve voted to approve the acquisition of Morgan Stanley’s German-based securities and foreign trading unit by the banking giant’s New York-based national bank. The internal reorganization was ratified as an exemption from section 23A of the 2002 Federal Reserve Act — the largest such exemption granted outside of a financial crisis, said Fed Governor Michael Barr, who dissented. Section 23A seeks to protect banks from losses tied to affiliate transactions, and prevent banks from passing along the subsidy from access to the federal safety net to their affiliates. The 4-3 ballot released Thursday was marked by a rare partisan split in a regulatory vote. Three votes in favor of the reorganization were appointees of President Trump in either his first or second term. The three “nay” votes were appointed by President Biden. The decisive vote was cast by Chair Jerome Powell, a Republican appointed to the Board by President Barack Obama, tapped for chair by Trump during his first term, and reappointed by Biden. — Morgan Stanley — Morgan Stanley said the acquisition would strengthen it, according to a letter from the Fed to the US Office of the Comptroller of the Currency, which also approved the transaction. The firm, a systemically important financial institution with $1,354 billion in assets as of June 30, 2025, said the merger would “balance its risk profile by expanding and diversifying its activities, revenue streams, and client relationships,” the letter said. In addition, the sixth largest US bank by assets said the reorganization would increase its profitability and improve its “ability to provide products and services to customers at a lower cost through improved efficiencies and cost savings.” Further, the bank said, the acquisition “would strengthen its strategic position and competitiveness,” according to the letter. Michelle Bowman, Barr’s successor as chief bank regulator, defended her vote in favor of the exemption. “Other large banks already operate with a similar structure and engage in similar activities through a bank-owned subsidiary in Europe,” she said. “At no point has the Board challenged or expressed concern about these existing ownership structures in terms of safety and soundness, financial stability, or the risks to the deposit insurance fund. These risks have been managed through appropriate supervision by the primary federal regulator.” “For as long as these foreign activities have been permitted,” she continued, “no U.S. bank has suffered material financial losses arising out of these overseas activities.” The US Federal Deposit Insurance Corp. joined the Fed and OCC in approving the reorganization, saying it would not pose “an unacceptable risk” to the Deposit Insurance Fund. That’s the bank-financed fund under the FDIC’s supervision that guarantees up to $250,000 of each depositor’s assets per insured bank and resolves failed institutions. — Dissents — Governor Lisa Cook, who has rarely if ever dissented on the Fed’s regulatory votes, and Barr disagreed with the FDIC. Cook said the move would create “a more direct channel from any distress Morgan Stanley's European trading subsidiaries may experience to Morgan Stanley's insured national bank, and thus to the [Deposit Insurance Fund].” Barr added that the acquisition “invites over $1.5 trillion in foreign nonbank activity to come within the federal safety net from large banks who might also take advantage of such an exemption.” The European investment bank has assets exceeding $85 billion and liabilities exceeding $75 billion, he said. The national bank “would assume a significant amount of liabilities of an affiliate through its acquisition,” he said. “Under financial stress, if the assets transferred ultimately prove insufficient to support the assumption of such liabilities, the New York-based bank could experience substantial losses.” Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, said: “President Trump’s financial regulators just gave Morgan Stanley permission to use taxpayer insured deposits to fund risky European trading activities. While American families are struggling to afford groceries, gas, and health care, Trump is subsidizing Wall Street’s foreign activities and importing their risk.” Please email editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers....