How close to the brink was Morgan Stanley at the height of the financial crisis?

After the crisis had waned, it became somewhat vogue for bank executives to claim that they were never really in danger and that they could have weathered the storm without aggressive aid from the government. But that narrative--in the case of Morgan Stanley anyway--has been pierced by a Bloomberg review of FOIA-ed data that shows the bank was essentially forced to borrow $107.3 billion from the Fed to stay afloat back in September 2008. That was more than twice as much as any other bank borrowed. That emergency financing seems to be the result of spooked hedge funds that essentially led a run on the bank, pulling nearly $130 billion from Morgan Stanley's prime brokerage unit in just two weeks. Whew!

"The bank never told investors about the extent of its Fed borrowings, even as they rose to the most in the 97-year history of emergency lending by the U.S. central bank."

This raises the issue of regulatory transparency when it comes to prime brokerage units, which have recovered strongly from the financial crisis. Prime brokerage units clearly represents a lot of risk that a bank could end up depleted of funds necessary for the normal functioning of the bank. We would have expected more scrutiny of the assets under management at prime brokerage units and how such funds are used. One open question is whether any disclosure changes have been made in this area. As of now, more hedge funds are actually trending back toward consolidating with fewer prime brokerages. So a repeat of history may be possible. We hope not.

For more:
- here's the article

Related articles:
Morgan Stanley's CEO invests more in bank's stock  
Goldman Sachs, Morgan Stanley polar opposites on VAR  
Morgan Stanley loses much less than expected in second quarter