S&P Global Ratings warned that banks’ expanding exposure to hedge funds and high‑frequency traders has birthed an “inherent fragility” in markets. Lending to firms such as Jane Street, Hudson River Trading and Citadel Securities now runs into the trillions, pushing tail‑risk levels higher. Record leverage and concentration of these loans in a few major banks amplify the threat of a stress event.

Prime‑brokerage financing topped $2.5tn in 2024, doubling over four years, according to the rating agency. That surge fuels record revenues for investment banks, with Goldman Sachs, Morgan Stanley, Barclays and BNP Paribas collectively pulling $25bn from markets financing in 2025 – a 25% jump year‑on‑year. For Goldman, financing made up nearly half of its $5.3bn equities‑trading haul in Q1, up 60%.

The model ties short‑term liquidity to long‑term funding commitments, tying up regulatory capital and raising the risk of forced selling if a leveraged position unwinds. The 2021 Archegos collapse, which cost prime brokers more than $10bn, illustrates the danger. Regulators are now scrutinising the basis‑trade strategy that depends on massive leverage, warning that a market shock could strain banks’ prime‑brokerage desks.