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Euromoney Learning Solutions

Funds Transfer Pricing

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Description

Be equipped to participate in the functioning and sustainability of existing FTP mechanisms

Funds Transfer Pricing [FTP] is critical to banks internal management of liquidity and market risk. Whilst regulators do not specify what FTP mechanism a bank should operate they do require it to be effective in ensuring that asset pricing includes an accurate reflection of funding costs. For a FTP mechanism to be successful, it requires the effective partnering of treasury, wider finance and the front line business.

This intensive workshop will utilise practical case studies to better equip delegates with an understanding of how FTP mechanisms have and are evolving, what is currently considered by the banking industry to be best practice in terms of their design and operation and strategies for overcoming challenges to them.

By attending this course, delegates will be better equipped to participate in the functioning of existing FTP mechanisms, advise stakeholders on their suitability and opine on enhancements to better meet current and future challenges.

Learning outcomes:

  • Articulate the role of FTP within a bank and the regulatory requirements for it
  • Describe the evolution of FTP methodologies from Zero Term Premium to Matched Term Premium pricing
  • Determine suitable proxies for derivation of a FTP curve including those in under-developed wholesale markets
  • Identify suitable basis adjustments to internally manage interest rate risk introduced by the funding model
  • Combine FTP curves with behavioural models to better value non maturing assets/liabilities
  • Adjust to FTP models to reflect regulatory impact such as LCR and Leverage ratio
  • Evolve existing FTP models to include Capital as well as Liquidity Funding costs and regulatory impact
  • Advise on enhanced portfolio analytics and opine on how alignment of business incentives are critical to the FTP mechanism’s success

Agenda

Day 1

Session 1: Defining FTP and it's benefits

  • Lessons from a crisis – how the ‘Credit Crunch’ identified the need for better asset transformation pricing
  • The importance of FTP to banks and regulators
  • What does FTP tell us
  • The role of FTP in removing market risk from the business
  • The role of FTP as an appetite statement

Session 2: FTP Methodologies and deriving the FTP curve

  • Selecting funding curves (Libor, OIS, etc)
  • Geographic and currency variations
  • Removing basis risk from the business
  • Calculating the pooled cost of funds
  • Limitations of the methods
  • Why maturity matching is considered best practice
  • Deriving the marginal costs of funds curve
  • Historic vs Expected Cost of Funds/Credit Spreads
  • Using proxies as inputs for the derivation
  • Applications of cross currency swaps in deriving non-domestic currency funding cost
  • Determining the maturity matched curve in non-developed wholesale markets

Session 3: Operating FTP

  • The FTP setting process and best practice governance
  • Applying FTP funding costs/benefits within management accounts
  • Calculating the Stock/Flow blended rate
  • At what ‘level’ to apply – portfolio or account?
  • Promoting consistency across business lines

Day 2:

Session 1: Focus on Behaviouralisation

  • Behaviouralisation methodologies
  • Identifying core and non-core portfolios
  • Impact of early repayment, redemption or default
  • Risks of ‘unwind’
  • Distributing the cost
  • Should behavioural performance be considered?
  • Governance and review of behavioural profiles
  • Operational considerations

Session 2: Pricing with FTP

  • Whether to use flow FTP rates or stock/flow blended rates
  • Pricing Assets and Liabilities
  • Fixed rate vs floating rate
  • Short dated vs long dated
  • Secured vs Unsecured
  • Pricing equity investments
  • Applying FTP to off balance sheet items, buffers and cushions

Session 3: Interaction of Basel Liquidity Regime and Funds Transfer Pricing

  • Impact of liquidity metrics on worth of funds
  • Impact of the leverage ratio
  • Distributing the ‘drain’ – assets or liabilities
  • Considerations beyond funding value

Day 3:

Session 1: Making FTP effective

  • FTP as a ‘hurdle’ rate– balancing introduction with pipeline delivery
  • FTP in Performance Management
  • Defining liquidity appetite with FTP
  • Linking FTP to RAROC and ultimately capital allocation
  • Re-pricing existing portfolios to reflect changes in FTP
  • Driving behaviours – aligning incentives to FTP
  • The need for a strong handshake between treasury and business

Session 2: Evolving to C-FTP – including cost of capital in FTP mechanism

  • Calculating the Cost of Capital
  • Treatment of Supplementary Regulatory Capital
  • How to charge the capital cost
  • Average or Specific RWA’S
  • Implications of IRB vs Standardised approach
  • Blending capital cost with liquidity cost

Session 3: Future evolution of FTP Models

  • Adjusting to reflect NSFR
  • Adjusting to reflect IFRS9 impairment
  • What else can be reflected?
  • Deriving FTP in illiquid wholesale markets
  • 3 days in 30 minutes – review of key points and takeaways

Experts

Gareth’s banking career spans more than two decades.From 2010 to 2014 he was Head of Barclays Corporates £110 billion liquidity portfolio, tasked with the end-end ownership of pricing and structuring of the portfolio and ensuring that margins were achieved whilst delivering funding ambitions and ...

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