Washington has been trying to free up more of the resources of big banks. Banks have wasted no time putting them to work, but on Wall Street rather than Main Street.
Big banks’ lending to consumers and midsize companies is moving modestly ahead. But demand for financing has boomed in their Wall Street trading businesses, which serve such clients as private-credit funds, hedge funds and institutional investors.
This kind of lending can drive big profits, in part thanks to advantageous regulatory treatment and because it brings in lots of fees for arranging trades, doing deals and other services.
But investors are starting to ask how much further banks can increase their Wall Street revenue—especially with growing risks in the current market, ranging from war to artificial-intelligence disruption.
For the first quarter, the six biggest U.S. banks reported another surge in trading revenue, collectively up 17% from a year earlier. Those banks are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
They also added more of the kind of assets that fuel those units. The total of average trading-related assets in the first quarter—which include such things as securities held in trading books, as well as repurchase agreements to swap cash for clients’ securities—grew by about 20% from a year earlier across the largest banks that report those figures.
Those banks are also seeing fast growth in lending through their trading desks. That can include loans to nonbank lenders, such as private-credit funds, which have been a big growth area in recent years. The banks that report loans specifically for their markets units increased them by around a quarter or more from last year.
JPMorgan Chief Financial Officer Jeremy Barnum told analysts that the bank’s markets lending had been “the primary driver of wholesale loan growth recently.”
Many companies and consumers have been cautious as they prepare for such things as higher energy costs, likely affecting their demand for borrowing. Overall consumer loans at the largest banks all climbed by low single-digit percentages in the first quarter over last year. Loans in the banks’ reported commercial-banking units that primarily serve midsize businesses also grew at around that pace.
Banks have powered their growth in trading partly by tapping some of the excess capital they built up during the Biden administration. Back then, they were preparing for potentially sizable increases in their capital requirements. Now, under new proposals during the Trump administration, some big banks expect to see steady or falling requirements.
From the fourth quarter of 2024 to the first quarter of this year, the key ratio of core equity capital as a percentage of risk-weighted assets at the six biggest banks has fallen by more than a percentage point on average. Those capital ratios are still solidly above the banks’ minimum requirements, but have reduced excesses over that level.
Regulators, meanwhile, relaxed last year a restraint on the largest banks’ use of leverage, which in particular helps trading activities that involve warehousing lower-risk assets such as Treasurys. Separately, Wells Fargo was released from its Federal Reserve size cap last year, enabling it to expand its assets.
Morgan Stanley told analysts that it “strategically deployed leverage-based capital this quarter to help facilitate client activity in our markets franchise.”
Still, it isn’t yet clear if banks’ markets revenue can keep up the pace in the quarters ahead.
For one thing, capital rules remain. JPMorgan told analysts Tuesday that it actually expects to see a 4% increase in required core equity capital under the Fed’s most recent proposals. It is still arguing for changes before those rules are completed.
Momentum might be growing for company borrowing, too. There was faster pickup sequentially in the companies’ corporate banking units than in markets lending from the fourth quarter to the first quarter, for the three largest banks that report those totals. That uptick is one reason why shares of smaller banks, which tend to be more reliant on company lending, have done well in 2026. The KBW Nasdaq Regional Banking Index is up 8% this year, ahead of the S&P 500’s 2.6% increase.
There are also signs that some investors might struggle if the conflict in the Middle East continues. The International Monetary Fund in a report this week said that volatility triggered by the conflict “heightens the risk that some hedge funds could face margin calls, forced deleveraging, and the unwinding of positions, which can significantly amplify market stress.”
Several banks cited weakness in interest-rate trading revenue, which is one way that some “macro” traders place bets. That was offset by a jump in commodities trading revenue in the midst of wild oil-price swings.
A surge in borrowing by trading clients has attracted the scrutiny of regulators and analysts. Tracking by the U.S. Office of Financial Research shows that prime-brokerage borrowing by hedge funds about doubled from the start of 2023 to the end of last year. A report this week by S&P Global said that “the rapidly expanding balance sheets of hedge funds and proprietary trading firms,” fueled by markets financing from banks, is “creating risks for major global banks and our ratings.”
Meanwhile, some private-credit funds are facing redemption requests from investors. Banks said this lending is heavily collateralized, and protected from all but the most extreme credit losses. Still, a slowdown in that activity could eat into revenue growth.
A boost in lending and financing in that business can help damp the natural ups and downs of markets. But it can also add exposure to risks that investors are now straining to understand.