Prime Brokerage Draws Bank Capital After eSLR Relief

Goldman Sachs (GS), JPMorgan Chase (JPM) and Citigroup (C) all told investors on their third-quarter 2026 earnings calls on October 13, 2026 that they are putting more capital into financing for hedge funds and other institutional clients, and that the related revenue or client balances have grown sharply [1][2][3]. The common thread is a loosened leverage-ratio rule: bank capital freed by the eSLR change is going to client financing before buybacks.

Why the leverage-ratio change frees balance sheet for client financing

A large bank's prime brokerage business lends to hedge funds and other institutions, lends them securities and settles their trades, earning interest spreads and fees. Measured by risk, this business uses little capital, but it makes the bank's balance sheet very large. The biggest US banks also face the enhanced supplementary leverage ratio (eSLR), which requires capital equal to a fixed share of total assets regardless of how risky those assets are. For years, that leverage ratio was often the real limit on how much financing these banks could offer.

On November 25, 2025, the Federal Reserve and two other bank regulators finalized a revised eSLR rule; banks could adopt it early from January 1, 2026, and it took effect on April 1, 2026 [4]. After the revision, the leverage ratio works more like a backstop for these banks than the first limit they hit. Because the rule applies to all of the largest banks, and clients want more financing than banks have been willing to supply, peer banks have a reason to put the freed room into the same business.

Financing revenue accelerates while buybacks take second place

Goldman Sachs management directly ties its bigger financing push to regulatory capital relief. CFO Denis Coleman said that this year, following the regulatory capital relief, the firm decided to expand deployment into its client franchise [1]. Goldman's equities financing revenue rose 59% year over year in the first quarter to a record $2.6 billion, and Coleman attributed that acceleration at the time to the firm moving quickly after the capital rule changes [5]. In the third quarter, the same line rose another 96% to a new record [1]. Financing's share of Goldman's FICC and equities revenue rose from 37% in 2025 to more than 40% year to date [6][1].

JPMorgan weighs that capital directly against buybacks. CEO Jamie Dimon said the bank now believes it can redeploy the capital at very good returns over time, which differs from what it told investors in the past, and called this the main reason its buyback is down [2]. Third-quarter equities revenue rose 49%, notably in prime, and CFO Jeremy Barnum agreed with an analyst's description of demand for capital as "insatiable" [2].

Citigroup's equities revenue rose 14%, driven by prime services, where client balances grew more than 40%; average loans in its markets business rose 30%, mainly from financing spread products such as credit and securitized assets [3]. CEO Jane Fraser said Citi is committing resources to grow prime balances [3], but Citi did not attribute that investment directly to the rule change. Taken together, the balance sheet freed by the rule change has gone first to client financing, and two of the three banks gave a direct causal explanation.

How financing growth shifts bank profit mix and buyback priority

Financing mainly consumes funding and risk capacity, so it can grow without a matching rise in headcount. Coleman said growth in these activities can bring favorable compensation-ratio benefits [1]. For a bank, extra capital now goes to financing first and buybacks get what is left, which is the order JPMorgan described [2].

The change has clear limits. Coleman said the largest balance sheet extension is behind Goldman, and the firm will now run a buffer on the supplementary leverage ratio, much as it does on its CET1 ratio [1]. Wells Fargo (WFC) reported third-quarter markets revenue down modestly year over year, and its net financing balances fell as some clients moved to sponsored repo cleared through a central clearinghouse [7], so not every bank turns the relief into revenue. Part of the growth also reflects cyclical factors such as high asset prices and strong Asian trading activity [5]. Three indicators are worth watching: financing's share of trading revenue, prime brokerage client balances, and whether buybacks keep taking second place.

Companies exposed to the same shift

• Morgan Stanley (MS): A large trading bank covered by the same rule revision. In July 2026, management said it has "a real SLR capacity" and that demand for that capital comes from its prime brokerage clients; equities revenue hit a record $6.3 billion that quarter. It also cautioned that many other players have capital to put to work, which could dilute financing pricing power [8].
• Bank of America (BAC): Also covered by the rule revision. Its second-quarter 2026 equities revenue rose 70% year over year to a record $3.6 billion, which management said was driven by client financing activity [9]. It has not directly disclosed whether it is also putting financing ahead of buybacks.
• BNY (BK): A tri-party agent that manages repo collateral between banks and their clients. Second-quarter clearance and collateral management fees rose 18%, and average collateral balances were $8.2 trillion, up 16%, with management citing growing dealer balance sheets as one driver [10]. Treasury issuance and money-market fund flows also affect this revenue.

Sources

[1] Drillr · The Goldman Sachs Group (GS) · 2026-10-13 · Q3 2026 earnings call

"We made decisions over the course of this year following some of the regulatory capital relief to expand our deployment into the client franchise."

[2] Drillr · JPMorgan Chase (JPM) · 2026-10-13 · Q3 2026 earnings call

[3] Drillr · Citigroup (C) · 2026-10-13 · Q3 2026 earnings call

[4] National Mortgage News / American Banker · Regulators finalize revised leverage rule for big banks · 2025-11-25 · News report · https://www.nationalmortgagenews.com/news/regulators-finalize-revised-leverage-rule-for-big-banks

[5] Drillr · The Goldman Sachs Group (GS) · 2026-04-13 · Q1 2026 earnings call

[6] Drillr · The Goldman Sachs Group (GS) · 2026-01-15 · Q4 2025 earnings call

[7] Drillr · Wells Fargo (WFC) · 2026-10-13 · Q3 2026 earnings call

[8] Drillr · Morgan Stanley (MS) · 2026-07-15 · Q2 2026 earnings call

[9] Drillr · Bank of America (BAC) · 2026-07-14 · Q2 2026 earnings call

[10] Drillr · BNY (BK) · 2026-07-15 · Q2 2026 earnings call

This article highlights industry changes and companies that may be overlooked. It is not a stock recommendation.