Funds Transfer Pricing (FTP)

Banks use fund transfer pricing models to price assets they finance based on the blended cost of their deposits and wholesale funding. The art of fund transfer pricing is understanding exactly how to offset the cost of funding liabilities when they are transferred onto the asset side and correctly pricing assets to offset interest payments and associated operating expenses to generate a return. Using fund transfer pricing, banks are able both to determine how their individual businesses are performing and prevent writing loss-making business.