Within prime brokerage, there are scale advantages. The more clients that a prime broker has, the greater the inventory of securities available for lending, making the prime broker a more attractive option for a new hedge fund selecting a prime broker. Scale can be measured in both breadth and depth of the inventory of lending securities. A large number of clients also means the prime broker has more diversified collateral under their control, enabling the prime broker to materially de-risk their overall lending exposures. Without scale, you need to take additional risk to win business. This could come in the form of taking risk on lower pricing in the form of charging lower margin for your prime brokerage services, which could lead to an operating loss. Extra risk could also come from asking for lower collateral requirements from borrowing clients, which increases the risk of the prime broker taking a loss from a client who is unable to meet their obligations. The Archegos Capital crisis in 2021 is relevant here. Many of Archegos prime brokers were affected when Archegos defaulted on their margin calls. The prime brokers involved lost billions. Upwards of 10 billion was lost from this single fund going under. Archegos deliberately sought out prime brokers that were willing to allow the firm to be aggressively levered by borrowing money to increase exposure to concentrated positions. They were even given the ability to effectively hide some of their exposure through the use of total return swaps, allowing them to increase their leverage even further. Many commentators believe this was all a result of prime brokers attempting to win more business on the basis of more relaxed capital requirements and risk tolerances.