Funds transfer pricing is a method used by banks to measure how each source of funding contributes to the bank’s profitability. A bank’s business depends on the deposits it receives. It uses these funds to make loans or investments.
Interest payments made on these funds determine the bank’s overall net interest margin.
The net interest margin typically is the largest source of bank profits. Because funds transfer pricing helps to calculate the net interest margin on a bank’s funds, it is one of the most important tools for measuring the profitability of each of a bank's funding sources.
Support and guide banks to build pricing curves for FTP
Integrated risk, performance management, customer insight, and compliance
Set transfer rates for a wide range of financial instruments
Implement the agreed FTP policy
Actively incorporate risk into decision making
Separate the components of net interest income and expense
Support various TP methods available for ALM forecasting and budgeting
Flexibility in assigning transfer rates to individual customer relationships
Calculate Option, liquidity, Treasury, and breakage charges
Develop a deeper analysis and understanding of bank’s optionality and liquidity costs