Major Wall Street banks have recently increased collateral requirements for hedge funds amid a sharp downturn in artificial intelligence (AI) stocks that has shaken several favored investment strategies. According to multiple sources familiar with the situation, banks have asked funds with heavy exposures to specific sectors to provide additional collateral if they wish to maintain their current leverage levels.

Among the lenders requesting higher collateral were Goldman Sachs and JPMorgan Chase, though both firms declined to comment on the matter. The demands reflect growing caution within the banking sector about the speed and extent of the sell-off in AI-related equities over the past two weeks, which has disrupted what had been a strong rally in the sector.

One insider described the collateral calls as routine risk management measures triggered automatically by market volatility. These protections are typically codified in agreements between banks and hedge funds to guard lenders against potential losses if markets move unfavorably.

Goldman Sachs recently noted that gross leverage among hedge funds rose more in the first five months of 2026 than in any comparable period since the firm began tracking such data in 2016. This indicates that many funds had increased their borrowing to amplify returns prior to the current market correction.

Banks continuously assess the risk profiles of their hedge fund clients and adjust leverage terms accordingly. The current adjustments come as evidence accumulates of the impact on hedge fund performance. As of midday Tuesday in New York, long-short hedge fund strategies declined 1.3 percent, while multi-strategy funds fell 1.7 percent, according to a Goldman report. These daily losses of over 1 percent in multiple strategies have not been seen since the volatile market conditions of the early 2020 pandemic period, although hedge funds remain on track for average gains exceeding 10 percent year to date.

Prime brokerage businesses provide leverage by lending to hedge funds against the value of their securities portfolios, enabling funds to amplify their returns. However, leverage also increases vulnerability to losses if markets move against a fund’s positions.

Market concentration has heightened this year, with the largest 10 companies in the S&P 500 accounting for about 40 percent of the index’s total value, surpassing levels observed during the dotcom bubble of the early 2000s, according to data from Capital Group. This concentration may be exacerbating risks for funds heavily invested in a narrow group of stocks amid the recent downturn.