Compare single-rate and multiple-rate funds transfer pricing methods and their effect on business line incentives.
Finance & Banking
Funds Transfer Pricing Methodologies and Liquidity Cost Allocation in Banks
Learn to design a funds transfer pricing framework: matched maturity funding curves, liquidity cost allocation, behavioural modelling and governance through ALCO.
🗓️Duration5 training days
📚Content4 modules · 8 sessions
🎓On completionAccredited attendance certificate
About the programme
Course Overview
When a bank's lending and deposit-gathering units are judged on headline margin alone, the numbers reward the wrong behaviour: a five-year fixed loan funded overnight looks profitable until rates move against it. Funds transfer pricing corrects this by charging every asset and crediting every liability with the true cost or value of its funding, and this course builds that framework from first principles. Participants construct a matched maturity funding curve, allocate liquidity costs separately from base interest rate risk, and model the behavioural assumptions needed for non-maturity deposits and prepayment-sensitive assets, where contractual maturity tells only part of the story. A dedicated module incorporates the cost of regulatory liquidity requirements into product-level pricing without double-counting, then links funds transfer pricing to capital allocation so business line performance reflects risk-adjusted return rather than raw margin. The final module addresses governance: how ALCO approves methodology and curve assumptions, how exceptions are handled, and how to report business line contribution in a way that separates commercial skill from treasury-driven results, while watching for incentives the pricing model creates unintentionally.
Expected Learning Outcomes
Construct a matched maturity funding curve and apply it to price loans and deposits.
Allocate liquidity premiums and model behavioural assumptions for non-maturity deposits and prepayments.
Incorporate liquidity coverage ratio and net stable funding ratio costs into product-level transfer prices.
Link funds transfer pricing to capital allocation for risk-adjusted business line performance measurement.
Establish FTP governance arrangements with clear ALCO oversight and documented exception handling.
Report business line contribution in a way that isolates commercial margin from treasury effects.
Who Should Attend
Treasury and asset-liability management professionals designing or maintaining the FTP framework.
Finance and product profitability analysts calculating business line performance.
ALCO members who approve FTP methodology and funding curve assumptions.
Business line finance partners who need to understand how transfer prices affect reported margin.
Balance sheet management staff coordinating liquidity and interest rate risk with pricing.
Bank finance professionals moving into treasury or asset and liability management roles.
Course Modules
Select any module to see its sessions and points.
01Foundations of Funds Transfer Pricing
2 sessions · 8 points
Session 1Purpose of FTP and the Single-Rate Versus Multiple-Rate Debate
- Explain why funds transfer pricing separates credit margin, liquidity cost and interest rate risk in performance measurement.
- Compare single-rate and multiple-rate FTP methods and identify which business models suit each.
- Assess the distortions a single-rate FTP system creates for long-dated asset or liability products.
- Define the objectives an FTP framework must achieve for lending, deposit and treasury functions.
Session 2Building the Matched Maturity Funding Curve
- Construct a matched maturity funding curve using the bank's marginal wholesale funding cost by tenor.
- Assign a transfer rate to a new loan or deposit based on its contractual or behavioural maturity.
- Adjust the funding curve for changes in the bank's own credit spread and market conditions.
- Reconcile transfer-priced net interest income against the bank's total reported net interest income.
02Liquidity Cost and Behavioural Adjustments
2 sessions · 8 points
Session 1Allocating Liquidity Premiums Across Products
- Separate the liquidity premium from the base rate component within the funds transfer price.
- Allocate liquidity costs to products based on their contribution to the bank's structural funding gap.
- Price contingent liquidity facilities, such as undrawn commitments, using an appropriate liquidity charge.
- Test whether liquidity charges create the intended incentive to gather stable, diversified funding.
Session 2Modelling Non-Maturity Deposits and Prepayment Behaviour
- Model the effective duration of non-maturity deposits using historical balance stability and rate sensitivity.
- Assign core and non-core portions of non-maturity deposits to different points on the funding curve.
- Estimate prepayment behaviour on retail and mortgage assets and reflect it in transfer pricing of embedded options.
- Charge an option cost to business lines for products containing prepayment or early withdrawal features.
03FTP for Regulatory Liquidity and Capital Alignment
2 sessions · 8 points
Session 1Incorporating Regulatory Liquidity Costs into Transfer Prices
- Estimate the cost of holding high-quality liquid assets required to support the liquidity coverage ratio.
- Allocate net stable funding ratio costs to assets and liabilities based on their required stable funding factors.
- Incorporate regulatory liquidity costs into product-level transfer prices without double-counting the base premium.
- Assess how changes in regulatory liquidity ratios would flow through to product profitability under FTP.
Session 2Linking FTP to Capital Allocation and Risk-Adjusted Performance
- Link funds transfer pricing to economic capital allocation for a consistent risk-adjusted return measure.
- Calculate risk-adjusted return on capital for a business line after FTP and capital charges are applied.
- Reconcile FTP-based profitability with regulatory capital and liquidity constraints at business line level.
- Identify products that appear profitable on a revenue basis but destroy value once fully charged for funding.
04Governance, Incentives and Reporting
2 sessions · 8 points
Session 1FTP Governance and ALCO Oversight
- Define the FTP governance structure, including ALCO's role in approving methodology and curve assumptions.
- Document FTP policy, including exception handling for non-standard or bespoke transactions.
- Review FTP assumptions periodically against actual funding costs and market conditions.
- Communicate FTP methodology changes to business lines with a clear rationale and transition period.
Session 2Reporting Business Line Contribution and Managing Incentives
- Build a business line contribution report that separates commercial margin from treasury-driven results.
- Identify unintended incentives created by FTP, such as encouraging excessively long deposit tenors.
- Present FTP-based profitability results to business heads in a format that supports pricing decisions.
- Recommend FTP methodology refinements based on observed behavioural responses from business lines.
What the participant receives
4 course modules
A structured syllabus
8 training sessions
across 5 days
32 detailed points
Applied, detailed content
Accredited attendance certificate
On completing the programme
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