Who Acts as the Counterparty in an Interest Rate Swap?

The counterparty in an interest rate swap is typically a financial institution, such as a large investment bank or a commercial bank, that acts as a swap dealer. These dealers run large "swap books" and act as market makers, quoting both fixed and floating rates to clients.

They can act as the direct counterparty to a corporation looking to hedge, or they can act as an intermediary between two parties with opposing needs (a practice known as back-to-back swaps). For some standardized swaps, a central clearing house may now act as the counterparty, similar to the futures market.