Morgan Stanley (MWD) supplanted Merrill Lynch & Co. (MER) last year as the largest securities firm by total capital, ending Merrill's 17-year reign at the top, according to Institutional Investor magazine's April issue.

Morgan Stanley ended its 2004 fiscal year with $110.8 billion in equity capital and long-term debt, while Goldman Sachs Group (GS) climbed one place to a No. 2 ranking with $105.8 billion. Merrill, meanwhile, slipped from first to third place with $102.6 billion at the end of last year.

"Competitive pressures are forcing securities firms to boost their capital," Institutional Investor said in a statement announcing the rankings. Faced with competition from big commercial banks, Wall Street firms are extending more credit and increasing proprietary trading, the magazine reported.

Morgan Stanley, which owns the Discover credit-card business, was also the biggest broker-deal in total assets with $775.4 billion.

Goldman meanwhile had the most excess net capital with $4.8 billion at the end of its 2004 fiscal year, followed by Swiss banking giant UBS with $4.61 billion. Morgan Stanley and Goldman increased their "excess net capital" by about a third last year, while Merrill increased its capital base 7 percent, the magazine reported.