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Morgan Stanley may incorporate its German investment bank into its holding company under an exception granted Thursday by the Federal Reserve Board.

The approval wasn’t without its detractors. Fed Vice Chair Philip Jefferson and Fed Govs. Michael Barr and Lisa Cook – each of the board’s three Democrats – dissented. But the exception still passed, 4-3.

The crux of the exception lies in Section 23A of the Federal Reserve Act, which requires U.S.-based Fed member banks to limit their transactions with their overseas nonbank affiliates such that no affiliate receives more than 10% of the U.S. bank's capital stock and surplus, and that the affiliates altogether do not receive more than 20% of the U.S. bank’s capital stock and surplus.

Morgan Stanley contends that an exception would “facilitate a more level playing field between the firm and its peers,” Jefferson noted in his dissent.

Jefferson said Morgan Stanley’s request should have been addressed through a rulemaking.

“The competitive concerns that Morgan Stanley raised may apply to other U.S. banking organizations,” he wrote. “It would have been valuable to request public comment on how differences in the corporate structure of large U.S. banking organizations may influence the overall competitive landscape, both domestically and abroad.”

Barr, meanwhile, expressed concern that a reorganization by Morgan Stanley “would expand the use of the U.S. federal safety net and potentially expose [the bank] and the deposit insurance fund to increased risk of loss.”

U.S. law now allows for exceptions on Section 23A’s limits if either the Federal Deposit Insurance Corp. or Office of the Comptroller of the Currency agree with the Fed board that such a move is in the public interest. The OCC joined the Fed in approving Morgan Stanley’s exception Thursday.

Barr argued that granting an exception for Morgan Stanley would “create a consequential precedent and may encourage other large banks to pursue similar structures, compounding risks to the federal safety net and broader financial stability.”

The Fed’s vice chair for supervision, Michelle Bowman, however, asserted no precedent was set Thursday.

“Other large banks already operate with a similar structure and engage in similar activities through a bank-owned subsidiary in Europe,” she wrote. “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.”

She added, “For as long as these foreign activities have been permitted, no U.S. bank has suffered material financial losses arising out of these overseas activities.”

Cook disagreed.

“This move creates 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 DIF,” she wrote.

The move caught the eye of the Senate Banking Committee’s ranking member, Sen. Elizabeth Warren.

“President Trump’s financial regulators just gave Morgan Stanley permission to use taxpayer insured deposits to fund risky European trading activities,” Warren, D-MA, said in a statement. “While American families are struggling to afford groceries, gas, and health care, Trump is subsidizing Wall Street’s foreign activities and importing their risk.”