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Rising Rates Seen Squeezing Swaps Income at Biggest Banks

The revenue engine that generated $42 billion for three of the biggest U.S. banks in less than five years is beginning to sputter as some borrowing costs rise.

The revenue comes from derivatives used by JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. to protect against interest-rate swings. Most of the contracts are swaps that exchange payments tied to a floating rate for ones that are fixed. Banks that benefited from swaps guaranteeing a flat rate could see profit drop as the spread between the higher fixed and lower variable rates narrows or reverses.