U.S. margin debt rose again in December, extending a relentless climb in investor leverage to a record for the seventh consecutive month.
Data from the Financial Industry Regulatory Authority (FINRA) shows that debt increased 0.9% month over month to $1.23 trillion, marking the eighth straight monthly increase. On a yearly basis, margin debt is up 36.3%, showing how much investors relied on borrowed money during the latest equity rally.
The steady rise has occurred even as the S&P 500 has largely flattened near recent highs, a combination that historically has left markets more vulnerable to abrupt pullbacks.
The Peril Of Margin Debt
Margin debt represents money investors borrow from their brokers through margin accounts to purchase securities. As FINRA explains, Regulation T allows brokers to lend up to 50% of the purchase price of a stock at initiation, while FINRA maintenance rules generally require that equity in a margin account not fall below 25% of the securities’ current market value.
If prices fall and equity drops below the threshold, brokers will demand additional cash, issuing the margin call. Failure to meet it triggers forced liquidations, seizing and selling positions automatically to restore equity levels.
These mechanics are a source of market stress during selloffs. As prices decline, forced selling triggers a rapid unwind of leverage. The most notable recent example is Bitcoin last October. A sharp price drop sparked a widespread forced deleveraging across crypto-linked margin products, triggering a $19.3 billion liquidation.
Today’s margin debt level also stands out relative to investor cash buffers. Measures of net investor credit—which subtract margin debt from cash balances—remain deeply negative, indicating that investors, in aggregate, owe far more than they hold in ready liquidity. That imbalance leaves less room to absorb volatility without triggering forced selling.
Trump’s Restrictive Ideas
When the market corrects, and investors scramble to find more cash for collateral, there might be fewer places to find it going forward.
Speaking today in Davos, President Donald Trump has criticized credit card rates, mentioning a plan to get Congress to cap the interest at 10%.
“They charge Americans interest rates of 28%, 30%, 31%, 32%,” Trump said. “Whatever happened to usury?”
The proposal could create uneven implications for retail investors. High-quality borrowers who retain their cards and limits might actually get cheaper short-term borrowing. Thus, they could still use this risky vehicle to cover margin calls.
But for riskier borrowers, a cap could lead to reduced limits or closed accounts, cutting off access to emergency credit. Ironically, those investors are often the most vulnerable to margin calls and the least able to withstand forced deleveraging.
Responding to the idea, JPMorgan Chase CEO Jamie Dimon has been blunt, calling the proposal an “economic disaster.”
“It would remove credit from 80% of Americans, and that is their back-up credit,” he said, adding that the fallout would hit retailers, travel companies, and municipalities as much as banks.
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