William Bryan Jennings, co-head of fixed-income capital markets at the Wall Street bank, was arrested near his home in Darien, Connecticut, on Wednesday, and charged with second-degree assault, larceny and intimidation by bias or bigotry, Detective Mark Cappelli told Reuters.
Jennings was released after posting $9,500 (5,994.45 pounds) bail and is scheduled to appear in court on March 9.
Police had been looking for Jennings since the alleged incident in December, but because he did not contact police and there was limited information about his identity, detectives were unable to immediately find him, Cappelli said.
After investigating the alleged incident and issuing a warrant for Jennings' arrest, the banker turned himself in at the Darien police station this week, Cappelli said.
Pen Pendleton, a spokesman for Morgan Stanley, said Jennings has been placed on leave.
Eugene Riccio, a lawyer for the 47-year-old banker, was not immediately available to comment.
The arrest and charges stem from a late-night cab ride that Jennings took from Manhattan to his $2.3 million home at 39 Knollwood Lane.
Upon reaching the destination, the driver and Jennings, whom the driver said was intoxicated, argued about the fare. The driver assessed a $294 charge and Jennings counter-offered $160, Riccio told the Darien Times.
The driver, who lives in Queens, New York, and is of Middle Eastern descent, told police that Jennings refused to pay the fare and began threatening him and using racial slurs, according to police.
With Jennings still in the car, the driver began driving around the city looking for a police officer to resolve the dispute, according to police. At some point the driver, whose identity is being withheld, put his hand through the partition and Jennings allegedly stabbed him with a pen knife, police said.
The driver then stopped the vehicle and Jennings allegedly fled from the scene, according to police. The driver called police to report the incident at 12:30 a.m. on December 22.
The driver received immediate medical attention in Darien and later went to a hospital where the lacerations required six stitches, Cappelli said.
Riccio has disputed the driver's story, telling the Darien Times that Jennings was the victim of an abduction and did not use racial slurs.
(Reporting By Lauren Tara LaCapra; Editing by Tim Dobbyn)
(This story was corrected in the third paragraph to change the court date to March 9, from March 7)