Banks push securities-backed loans to defer capital gains

Merrill, BMO Wealth Management and Charles Schwab are marketing securities-backed loans that let investors borrow against publicly traded stocks, bonds and certain alternative assets to get cash without selling holdings and triggering capital gains taxes. Banks are pitching the loans as a faster, lower-cost source of liquidity than unsecured credit or loans tied to hard-to-sell collateral.

Securities-backed lending uses investments held in client accounts as collateral. Because the lender holds the securities as security for the loan, the borrower does not create a taxable event by selling those assets. Wealth and banking units at the three firms are expanding these offerings and highlighting the ease of valuing public securities as a reason approvals and pricing can be quicker than for other credits.

Merrill created a lending solutions group last year to increase banking services for wealth clients. Kurt Niemeyer, who leads the group, noted the firm reported $10 billion in new loans to clients in 2025 and described securities-backed lending as one option for clients seeking cash while avoiding capital gains.

Steve Kwei, head of wealth management banking at BMO, said loans secured by readily valued collateral often close faster than mortgages or more complex credits. He described the product as an efficient near-term source of liquidity and said BMO reviews a client’s overall finances to determine whether a loan, a sale or another solution best fits the situation.

Firms are lending against more than standard stocks and bonds. Executives at Merrill and BMO reported they extend credit secured by hedge fund positions and, in selected cases, private equity. High-net-worth clients can obtain loans backed by commercial real estate or high-value items such as artwork, aircraft and yachts. Merrill offers a loan management account for clients with about $100,000 in investable assets and a custom lending group for clients with roughly $5 million in investable assets and net worths above $25 million.

Charles Schwab is using its internal bank to make alternative-backed loans available to clients of independent registered investment advisors. Schwab’s leadership said advisors frequently ask the firm to provide lending services so they do not have to refer clients to outside banks. The firm is pairing custody and clearing services with expanded lending options for that advisor network.

Banks cite a commercial benefit: when clients borrow against assets held at the firm, those assets are less likely to move to a competitor. Wealth managers say clients often need large sums for purchases such as commercial real estate or business investments and may want to avoid selling equity before potential future gains.

Lenders say the liquidity of publicly traded securities generally keeps interest rates lower than on unsecured credit or loans backed by illiquid collateral. Banks combine lending with investment analysis so advisors can model whether deploying borrowed funds could yield returns above borrowing costs. Niemeyer said clients can benefit when the return on invested loan proceeds exceeds the interest on the loan.

Regulatory and risk practices differ by asset type. Loans secured by public securities are easier to value and monitor. Alternative assets such as private equity require specialized valuation and underwriting. Firms maintain lending margins and monitoring systems to manage the risk of sharp market moves that could reduce collateral value, trigger margin requirements or force liquidation of pledged assets.

With the stock market more than three years into a bull run, wealth managers and banks have increased outreach on securities-backed lending as a tax-deferral and liquidity option. Clients and advisors considering these loans can choose from a range of products and collateral types based on account size, net worth and the complexity of the assets involved.