Fund Transfer Pricing Engine (FTP)

What Is FTP

Funds Transfer Pricing (FTP or TP) is a system used to estimate how funding is adding to the overall profitability of a company. FTP is most significantly used in the banking industry where financial institutions are using FTP as a way to assess the points of strengths and failings of the firm in the institution. Financial institutions are increasingly incorporating FTP into performance evaluation systems after observing the value of matched rate transfer pricing compared to other transfer pricing standards.

The shortcomings of traditional transfer pricing are several, some of them being: unprofitable growth, liquidity traps, and repricing risks. Shortcomings like these are easily overcome by implementing transfer pricing rates based on the individual characteristics of the institution’s products such as origination date, term, options, and expected cash flows.

Under the multiple rate approach, assets and liabilities are given transfer rates that reflect their specific maturity and repricing characteristics.

Product Sheet

The promised solution is capable of calculating the transfer rate at the lowest level of detail in Customers accounts level. Using the solution provided by Smartera3S one can create accurate credits and charges for all sources and use of funds in an institution. The solution also promises to compute net interest margin contributions at the product record level.

Key Features

Accurate Fund Allocation

Our FTP system allows precise allocation of funds between different departments, branches, or business units, helping ensure fair pricing and accurate profit measurement across the organization.

Dynamic Pricing Models

The system supports multiple pricing models, enabling your organization to set different transfer pricing rates based on market conditions, asset/liability profiles, and business strategies.

Enhanced Profitability Insights

By using the FTP system, you can gain valuable insights into the profitability of each business unit, providing a clearer picture of performance and supporting strategic decision-making.

User-Friendly Interface

Designed with ease of use in mind, the system features an intuitive interface that enables quick setup, configuration, and management of fund transfer pricing without requiring extensive technical knowledge.

Customizable to Business Needs

The FTP system can be customized to meet the specific requirements of your organization, accommodating different financial products, risk profiles, and reporting needs.

Benefits

Funds Transfer Pricing combines advanced methodologies with a flexible and easy-to-interpret reporting tool; this combination is what ensures accurate and consistent results. The Funds Transfer Pricing System allows to:

Determine the account level spread earned on assets and liabilities, and the spread earned or lost as a result of interest rate risk exposure.

Use account-level match funded spreads to produce account, customer, product, and business unit performance measures.

Apply multiple TP add-on rate assignments to incrementally price for liquidity risk or basis risk or incorporate pricing incentives.

The transfer pricing process isolates the four major sources of a bank's margin:

  • The spread earned on assets.
  • The spread earned on liabilities.
  • The spread earned or lost as a result of interest rate exposure.

Hold business units accountable for what they can control: pricing and profitability.