Funds Transfer Pricing

Agenda Program
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Prague, NH Hotel Prague
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Introduction to Funds Transfer Pricing
FTP Functions and Objectives
FTP Methods and Approaches
Practical Transfer Price Calculations
Challenges in Funds Transfer Pricing
Designing and Implementing an FTP System
Integrating FTP into Enterprise Risk Management
A two-day comprehensive course on Funds Transfer Pricing concept, practical FTP calculations and related implementation issues

Course Description
The purpose of this course is to give you a good understanding of Funds Transfer Pricing methods and approaches and of their practical use in the banking industry. We start with a general introduction to Funds Transfer Pricing and risk-adjusted performance measurement. We explain FTP basics and present processes for allocation funds to the business units.

We give a thorough introduction to FTP functions and objectives that primarily include: profitability management, liquidity management, balanced sheet management, capital allocation and product pricing.

We present and explain concepts such net interest income margins, cost of funds and liquidity mismatches, and we also describe how FTP can be used for differential product pricing.

Further, we present, explain and demonstrate FTP methods and approaches. These methods include: single-pool, multiple-pool and matched-maturity approaches. Then, we look at a practical transfer price calculations.

Finally, we explain how the FTP System should be designed and implemented in compliance with other banking systems within risk management framework.

Classroom style lectures featuring up-to-date and relevant case studies and example.

Program of the seminar: Funds Transfer Pricing

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Funds Transfer Pricing

  • Basic FTP Concept and Risk-adjusted Performance Measurement
  • How to Reliable Identify Business Unit Performance?
  • FTP as a Management Tool and an Internal Allocation System
  • The difference between FTP and LTP (Liquidity transfer pricing)

FTP Functions and Objectives

  • Profitability and Liquidity Management
    • Net interest income margins and cost of funds
    • Profitability Targets for Business Units
    • Short-term liquidity management
    • Liquidity mismatches and surplus
  • Balanced Sheet Management and Capital Allocation
    • Centralized interest rate risk management
    • Management of structural balance-sheet mismatches
    • FTP as an Internal Allocation System
    • Bank capital re-allocation on performance data
    • Management of overall balance sheet risk
  • Product Pricing and Business Decisions
    • Risk-based pricing versus commercial pricing
    • Customized pricing benchmarks
    • Strategic decision-making and business budgeting

12.00 - 13.00 Lunch

13.00 - 16.30 FTP Methods and Approaches

  • Pooled Funds Transfer Pricing
    • Single pool method and its pitfall
    • Multiple pool method (pool criteria)
  • Matched-Maturity
    • Assignment of a explicit transfer rates
    • Specific funds characteristic and attributes
    • Advantages for capturing individual transactions
  • Comparison of Funds Transfer Pricing Approaches
    • Strengths and weaknesses in FTP methods

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Practical Transfer Price Calculations

  • Different methodologies to define transfer rate
  • Components of a transfer price
    • Based cost of funds
    • Funding liquidity curve
    • Contingent liquidity spread
    • Margins and adjustments
  • Detailed FTP Curve Construction
  • Treatment of Specific Transactions

    Case Study:

    • Detailed FTP example
    • What goes wrong in practice

Challenges in FTP

  • Dealing with Embedded Options
  • Treatment of Non-financial Risks
  • Adjusting for Basis Risk
  • Accounting for Non Performing Assets

12.00 - 13.00 Lunch

13.00 - 16.30 Designing and Implementing a Complex FTP System

  • Best Practise in FTP Implementation
  • Centralized Management of FTP Policies and Procedures
  • Roles and Responsibilities at a Business Unit Level
  • Management Reporting and Planning
  • Linkage with Treasury Systems and Functions

Integrating FTP into Enterprise Risk Management

  • How integration of FTP with ERM can create value?
  • Interconnection between FTP and Risk Management Framework
  • Application of FTP results in Practical Risk Management Strategies
  • Further development of FTP Systems

Evaluation and Termination of the Course

Training catalogue in PDF
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