Information Management & Business Intelligence
Enterprise Event HandlingFund Transfer Pricing Engine (FTP)
What 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.
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 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.
- Apply multiple TP add-on rate assignments to incrementally price for liquidity risk or basis risk or incorporate pricing incentives.
- Hold business units accountable for what they can control: pricing and profitability.
- Use account-level match funded spreads to produce account, customer, product, and business unit performance measures.
- 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
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