Big Wall Street banks have already secured a banner year for equities trading, driven by the global boom in artificial intelligence stocks, relaxed capital rules, and increased lending to hedge funds. The five largest investment banks recorded roughly $67 billion in equities revenue through September 30, marking $7 billion more than their total haul in 2025, which itself was a record year.
This record bonanza, however, disproportionately benefited a select few. Wall Street’s “Big Three”—Goldman Sachs, JPMorgan Chase, and Morgan Stanley—captured a combined $52 billion in stock trading revenue so far this year, accounting for nearly 80% of the total. Wells Fargo banking analyst Mike Mayo observed that when it comes to the “AI mega trade,” these three institutions “consider each other their main competitors, and that's pretty much it,” positioning them uniquely to exploit the market. This dominance highlights a “widening divide” within capital markets, separating these giants from rivals like Bank of America and Citigroup.
The surge in activity comes as the total value of the stock market balloons and trading increases across stocks, exchange-traded funds, and derivatives. A primary driver of this sustained activity is the banks' prime brokerage businesses, which extend margin loans to hedge funds, enabling them to amplify their market bets. Demand for this leverage, particularly for investments in AI hardware, hyperscalers, and chip suppliers, has reached “new heights,” according to bank executives. JPMorgan CFO Jeremy Barnum affirmed the “insatiable demand for capital” point on a recent conference call, noting capital is being tapped through “all kinds of different mechanisms.” At Goldman Sachs, equities financing activities alone surged 96% in the third quarter to a record $3.37 billion.
This escalating demand for capital has transformed the equity desks at the Big Three from “cyclical, transactional businesses into more durable, high-margin lending engines.” Yet, the expansion of leverage has drawn concern. The International Monetary Fund (IMF) warned this month that increasing leverage, combined with crowded positions and correlated selling from hedge funds, could introduce “potential stability risks.” The IMF estimated global hedge fund assets had swelled to $13 trillion. JPMorgan CEO Jamie Dimon noted earlier this year that industrywide leverage was “the highest it’s ever been,” although he did not classify the risk as a major threat to financial markets.
A key enabler of this equities boom, and the accompanying rise in leverage, stems from changes in regulations. Trump administration regulators eased some leverage rules for the largest U.S. banks, granting them more flexibility to expand balance sheet-heavy operations such as prime brokerage. These revised rules, finalized in 2025 and adopted as early as January, relaxed stringent balance sheet caps. Previously, these caps treated collateralized prime brokerage loans and Treasurys identically to higher-risk assets. Stanford finance professor Darrell Duffie, an expert on financial stability, commented that “Capital did go down, so you have to say the system is somewhat more levered because of the relaxation in regulations,” adding that it's “not a good idea.”
The global footprint of the Big Three, particularly in Asia, has also played a role, with institutional investors pouring into South Korea and Taiwan to target memory chipmakers and semiconductor manufacturers. However, trading executives caution that transaction taxes and stamp duties included in top-line revenue for these Asian operations “artificially inflat[e]” prime totals. Furthermore, there is “no agreed-upon definition” for what constitutes equities trading revenue, leading some banks to include services like clearing that others exclude, complicating “apples-to-apples comparisons.”
Wall Street executives, predictably, downplayed concerns over escalating leverage, emphasizing their use of collateral and frequent stress testing to preempt problems. JPMorgan’s Rachid Alaoui highlighted how prime brokers reacted to summer market movements against clients, leading to “deleveraged, risk came down, and the market moved on.” Barnum similarly characterized hedge fund leverage as “very much in the category of known unknowns,” suggesting they understand the risks. Despite this confidence, analysts warn that if the AI build-out proves less transformative than anticipated, a market downturn could disproportionately impact these heavily invested banks.