Moneta●
TRAINING IDEAS
MODULES
Funds Transfer Pricing [FTP]
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.
Funds Transfer Pricing [FTP] is critical to banks internal management of liquidity, funding and interest rate 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.
Course outline
Module:
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 IR risk from the business
The role of FTP as an appetite statement
Module:
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
Module:
5
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
Module:
7
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
Module:
9
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
Module:
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
Module:
4
Focus on BehaviouralIisation
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Behaviouralisation methodologies
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Identifying core and non-core portfolios
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Impact of early repayment, redemption or default
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Risks of ‘unwind’
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Distributing the cost
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Should behavioural performance be considered?
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Governance and review of behavioural profiles
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Operational considerations
Module:
6
Pricing with FTP
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Whether to use flow FTP rates or stock/flow blended rates
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Pricing Assets and Liabilities
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Fixed rate vs floating rate
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Short dated vs long dated
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Secured vs Unsecured
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Pricing equity investments
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Applying FTP to off balance sheet items, buffers and cushions
Module:
8
Evolving to Total Funds Transfer Pricing (TFTP) – including cost of capital in FTP mechanism
Why are methodologies evolving to include capital funding
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