Table of Contents
Y241221 / Margin debt at U.S. brokerages and FINRA member firms rose +34.8% YoY as of November 2024, as the price level of the S&P 500 similarly rose $1,465 YoY over the same period.
Below is the measure of margin debt (or leverage) in U.S. stock markets that we follow at Yield to Best. FINRA collects and aggregates carrying margin account balances for customers at brokerages and FINRA member firms. We track the margin debt data against the total price level of the S&P 500 on a monthly basis.
The data from FINRA is not the entirety of margin lending happening in the stock market, however it represents an accurate historical picture to be tracked over time.
Another material source of leverage in the stock market is securities based lending (among others). This data is only infrequently available or disclosed by the large money-center banks via public filings.
Scroll past the chart for amplifying information on the data source and interpreting the output.
1 Change in S&P 500 Relative to Change in Borrowings on Margin
YoY price change in S&P 500 index value (left axis) vs. YoY percent change in total margin debt (right axis)
2 Data Source
Margin data was pulled on 21 December 2024 and is collected, compiled, and maintained by FINRA. The data is available at this link.
3 For Further Data
Interested analysts can comb through the public filings of large bulge bracket banks for ‘securities based lending’ to see some of the other borrowing occurring in the stock market.
The last time we updated our database – the following terms were used by each entity:
- Citigroup: ‘securities lending agreements’
- Bank of America: ‘U.S. securities based lending loans’
- Wells Fargo: ‘other revolving credit, net student loans’
- Morgan Stanley: ‘securities-based lending and other loans’
- Credit Suisse (RIP): ‘securities received as collateral’
- UBS: ‘securities lending agreements’
- Barclays: ‘securities lending arrangements’
- TD: ‘securities lending arrangements’
Other stock-based leverage sources (beyond brokerages and bulge bracket banks) can be at hedge funds or other institutional investors, embedded leverage in options and derivatives, and as of recently – the increasingly popular leveraged ETFs.
4 Why This Output is Helpful
Dramatically increasing leverage typically highlights a reach for yield, as market participants need ever increasing amounts to achieve their hurdle rates, cost of capital, or simply their desired rates of return. This reach for yield often corresponds with rising price levels in the market. As the numbers go up and up, the period can be classified as one where (1) diminishing returns are offered to investors and (2) it takes an exponentially increasing amount of leverage to continue making such attractive returns.
If the upward movement carries on, to some undefined point, there can be a moment when the prices begin to collapse under their own weight. Painful unwinding of the leveraged positions can result, which usually involve forced selling triggered by margin calls.
Said a different way, when numbers go up – things work very, very well. And when, sometimes, numbers no longer go up – there can be disastrous outcomes.
As mentioned above, the FINRA reported data is just a portion of the total borrowing happening in the stock market. The FINRA data is the most consistent (monthly) and most reliable, which is why we track it.
