Wall Street’s trading risks are bigger than any one hedge fund. Margin lending — secured loans to buy stocks, bonds and other investments — rose 6% in the second quarter, according to a new report from Bankregdata, making it the fastest-growing category of bank loan. The near-demise in July of wunderkind fund manager Leopold Aschenbrenner, who borrowed heavily from Bank of America, Goldman Sachs, JPMorgan and others, exemplifies the risk inherent in the business. While such excess has yet to rattle investors, it is a reminder of the dangers lurking in a market that has powered a boom for big-bank traders.
Non-bank liquidity providers are growing fast
Industry consultant Coalition Greenwich estimates that NBLPs took in $114 billion in revenue in 2025, up 138% since 2023. This coincides with massive growth in banks’ prime lending, which roughly doubled in two years to $3.2 trillion, according to the OFR. To boot, the NBLPs are becoming more hedge-fund like: nearly 75% of their revenue is derived from proprietary trading, up from a 50-50 split with market-making, Coalition Greenwich reckons.
Bankers argue that the Aschenbrenner episode validates a safer trading model, since lenders were repaid. Yet it gestures towards risk concentrated at the more systemically important trading firms. Banks are increasingly inching back towards the trading danger zone.
Context news: Hedge fund Situational Awareness, run by OpenAI alumnus Leopold Aschenbrenner, agreed on July 30 to sell the majority of its portfolio of public equity positions to Citadel at an over-10% discount amid pressure from margin calls, the Wall Street Journal reported on August 5.
Situational Awareness was a particularly avid customer. Aschenbrenner leveraged the fund’s stock trades, which made up about two-thirds of his portfolio, by three to four times, the Wall Street Journal reported. After wild stock volatility triggered margin calls, the forced sale of his public portfolio to Citadel spared the banks from losses. The fund’s holdings consequently dwindled in value by about $35 billion, CNBC reported.
Hedge-fund prodigies are not the only risk around, though. Gigantic market-makers like Citadel or Jane Street, dubbed non-bank liquidity providers, have filled the gap left by Wall Street’s post-crisis retreat. Yet, as S&P Global points out, they remain tightly linked to traditional financiers, who lend to them largely through prime brokerage desks.
Banks and trading revenue are increasingly tied to financing
Ever since the 2008 financial crisis, the riskiest, proprietary trading activity has moved outside of the major lenders. Yet revenue booked by traders at the five biggest Wall Street banks soared 71% over the past three years. Only some firms break down how much of that revenue came from forms of lending. But at Bank of America, Citigroup and Goldman Sachs, about 40%, on average, of it is expected to come from financing fees in 2026, according to Visible Alpha, up from 27% three years ago.
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