Banks May Lose $4.5 Billion a Year From Swaps Shift

Banks stand to lose as much as $4.5 billion in annual revenue as regulations aimed at improving financial stability alter how interest-rate swaps are bought and sold, according to a report from McKinsey & Co.

That’s equal to 35 percent of the $13 billion in revenue banks worldwide earn each year from rate derivatives and comes at a time when their fixed-income, currencies and commodities businesses are flagging, McKinsey’s Roger Rudisuli and Doran Schifter said. The driving force is the requirement that most swaps trade on electronic systems rather than over the phone, with more price transparency and competition eating profits.