Bank Internal Funds Transfer Pricing

A key ingredient in best-practice liquidity risk management is an effective and robust internal funds pricing (FTP) regime. A disciplined FTP mechanism helps to ensure realistic pricing for both assets and liabilities, as well as more transparent returns analysis. It also helps to prevent artificial P&L reporting. The post-crash Basel III regime being implemented by regulators places a strong emphasis on the importance of a bank’s FTP framework. This 2-day course is designed to provide an in-depth and practical review of FTP and recommended best-practice. It covers every aspect of internal funds pricing governance and internal funding policy to risk measurement and returns analysis. As important, it places the issues within the context of overall bank asset-liability management and liquidity risk management. The course is aimed at senior or experienced practitioners in Treasury, ALM, Finance and Risk Management, as well as regulators and consultants. Delegates will acquire a comprehensive understanding of leading edge FTP practice and how it should be integrated into a bank’s strategy and business model, thus optimising their bank’s balance sheet risk management. The course reviews the rationale and objectives of the bank internal funds pricing (“Funds Transfer Pricing” or FTP) regime and recommends procedures on how to integrate it into bank asset-liability management. Its key features include detailed discussion of: An effective internal funding framework Objectives of internal funding policies Integrating FTP into overall liquidity policy The cost of funds: applying the true bank funding cost to the business Funding policies: banking book, securities trading book, derivatives book Setting the correct market-implied FTP curve Treasury operating model, FTP and balance sheet management FTP and liability strategy Implementing an FTP system
Registration commences at 9:00 on Day 1 Programme runs from 9:30 - 5:00 each day Day 1 The Concept of Internal Funds Pricing An effective internal funding framework Objectives of Internal Funding Policy Consistent liquidity pricing behaviour amongst business lines Removing interest-rate risk from the business lines Including the bank’s cost of liquidity in product pricing Driving balance sheet shape and direction for assets and liabilities The correct internal pricing regime for the bank The Cost of Funds Constructing the bank’s internal funding curve Different reference funding curves (Libor, OIS, etc) Marginal unsecured curve Secured funding curve Weighted average cost of funds (WACF) curve Setting the Correct Market-Implied Term Funds Transfer Pricing (FTP) Curve Business best-practice approach to constructing the risky yield curve Proxies for the internal funding curve input FTP and Liquidity Management Pricing liquidity via the FTP process Costs of raising liquidity correctly Pricing Liquidity The concept of the term liquidity premium (TLP) Loan pricing incorporating TLP Day 2 Treasury Op Model, FTP and Balance Sheet Management Integrating FTP into balance sheet management FTP centre as cost centre or profit centre FTP across different business lines: alternative approaches FTP and Liability Strategy Integrating FTP strategy into ALM and liability strategy Driving liabilities-raising behaviour through the FTP mechanism A dynamic FTP regime for changing yield curve environments Funding Policies Banking book Trading book Derivatives Applying and updating funding policies Implementing an FTP System Policy and procedure for setting up the bank’s FTP regime Governance, roles and responsibilities Case Studies and Debating Points Key issues and considerations that must be addressed when implementing the FTP regime Course Summary & Close