Concept
Lombard lending is a loan secured by a liquid portfolio of securities. The client pledges stocks, bonds, or funds and receives a credit line without selling the assets: the securities stay in their ownership, dividends and coupons keep accruing, and cash lands in the account. The bank holds the portfolio as collateral and sees its market value at all times, so the limit is decided quickly, without the lengthy underwriting and appraisal of a mortgage. The name itself comes from the Lombard merchants of northern Italy, who lent against movable collateral back in the Middle Ages.
Origins
Modern lombard lending grew out of private banking practice: for a wealthy client with a large portfolio, it is more convenient to borrow against it than to sell the assets and trigger capital gains tax. The classic providers are the Swiss and Luxembourg banks, where lending against pledged securities became a separate line of business long ago, with its own limits and risk models. Over time the range of eligible collateral has widened: today banks take not only stocks and bonds but also cash balances, money market funds, and even life insurance policies with an accumulated cash value.
How the Limit Is Calculated
The limit is calculated from the market value of the portfolio minus a haircut — a discount for risk. The bank assigns each asset class its own advance rate, or loan-to-value (LTV): the more liquid and stable the security, the more can be borrowed against it. High-quality government bonds are lent against at 80–95 percent of value, investment-grade corporate bonds at 70–85 percent, blue-chip stocks and broad index funds at 50–70 percent, and individual volatile stocks at 0–50 percent. Concentrated positions, illiquid holdings, and complex structured notes are discounted harder or not accepted at all. In Switzerland, FINMA explicitly expects banks to set haircuts by asset type in advance, so there is little room for discretion. Across a mixed portfolio the resulting limit usually settles around 50–70 percent and is arranged as a revolving credit line or a fixed-term tranche.
Rate
The rate on a lombard loan floats: a benchmark plus the bank's margin. The benchmark depends on the currency of the loan — SOFR for dollars, EURIBOR for euros, SARON for Swiss francs. The loan is secured by collateral, so the margin is small and the resulting rate comes out lower than on unsecured credit. Benchmark levels now diverge markedly: by mid-2026 SOFR is holding around 3.6 percent, three-month EURIBOR around 2 percent, and SARON sits at the Swiss zero (the SNB has held its rate at 0 percent since the summer of 2025), which makes a franc-denominated lombard the cheapest of the three. The downside of a floating rate is obvious: when central banks raise rates, servicing costs rise in lockstep across the whole line, and the buffer to a margin call melts away.
Use Cases and Premium Financing
A lombard loan is taken to raise cash without breaking an investment position: to finance the purchase of property or a stake in a business, to cover a cash-flow gap ahead of a large deal, to pay a tax bill, or, less often, to add leverage and buy more assets. For family capital it is a working liquidity bridge when money is needed here and now and selling off a quality portfolio into a poor market makes no sense. A common scenario is a bridge to close a deal, which is then repaid from the proceeds or refinanced with a longer loan.
Premium financing: credit against an insurance premium
A separate branch of lombard lending is premium financing: the bank funds the payment of a large insurance premium, most often on unit-linked, whole-life, or PPLI policies. The collateral is the policy itself with its accumulated cash value and, as a rule, an additional portfolio. The capital stays invested and keeps working, while borrowed leverage pays for the insurance cover. The structure is sensitive to rates: as long as the loan is cheaper than the return inside the policy, the scheme is in the black, but if rates rise or the market weakens the bank will call for more collateral, just as on an ordinary lombard loan.
Loan and taxes
The appeal of a lombard loan is largely tax-driven. Taking out the loan creates no taxable event: selling shares crystallises the gain and the tax on it, whereas borrowing against the same shares leaves the position untouched. This is the basis of the well-known buy-borrow-die logic, where a wealthy owner lives for years on credit against the portfolio and never realises a profit. For a client who has changed tax residence, the same technique helps wait out an unfavourable jurisdiction and avoid crystallising a gain too early. The precise consequences depend on the country of residence and the ownership structure, so a lombard loan is almost always built into the wider map: holding, family office, and an insurance wrapper.
What to check in the contract
The terms of the credit line matter more than the advertised rate. Most lombard lines are uncommitted: the bank may revise the limit or demand repayment at its own discretion, especially in a falling market. It is worth establishing in advance the margin call triggers and whether there is a cure period — the window in which additional collateral may be posted before the bank starts selling the pledge. The currency matters: a loan in one currency against assets in another adds exchange risk on top of market risk. Cross-collateralisation deserves separate attention, where the entire portfolio at the bank becomes security for the line and the freedom to dispose of the assets narrows.
Leverage Works Both Ways
Lombard lending is an ordinary banking product, but leverage amplifies both profit and loss. With a floating rate and volatile collateral, the borrower carries a double risk: rising interest rates and falling collateral at the same time. To live off the proceeds of a lombard loan, practitioners cite a portfolio of €8–10 million to have enough buffer against a margin call.
This material is for informational purposes only and does not constitute individual advice.