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Treasury: Bank Internal Funds Transfer Pricing and Asset-Liability Management


Bank Internal Funds Transfer Pricing and Asset-Liability Management

Presenter: Professor Moorad Choudhry 

Video Lectures:

Part 1 (Running Time: 1.25:37)

Part 2 (Running Time: 44:31)

Part 3 (Running Time: 1.00:43)

Part 4 (Running Time: 47:27)

Bank internal funding management has been highlighted by regulators as one of the key segments of an effective liquidity risk management framework, and an important policy area in liquidity risk management. This one-day course provides comprehensive coverage of business best-practice approach to bank internal funds pricing. Aimed at senior or experienced Treasury and Finance practitioners, it covers the complete spectrum from governance and internal funding policy to risk measurement and returns analysis.

Delegates should leave with an understanding of leading edge FTP practice and how it can be integrated into bank asset-liability management and balance sheet management, thus optimising their bank’s liquidity management framework. The framework and recommendations are applicable in retail, corporate and investment banking business models.

Key Features:

  • 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
  • Assets and Liabilities Behaviouralisation
  • FTP and liability strategy
  • Template FTP policy for a commercial bank: example illustration

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)

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



Published date

19 September 2014



Presenter Bio

Moorad Choudhry

Professor Moorad Choudhry is at the Department of Mathematical Sciences, Brunel University. He is also Honorary Professor at Kent University Business School and Visiting Teaching Fellow at the Department of Management, Birkbeck, University of London. Moorad has over 25 years experience in banking in the City of London and was latterly Treasurer at Williams & Glyn plc, Royal Bank of Scotland. Prior to that he was Head of Treasury at RBS Corporate Banking, Head of Treasury at Europe Arab Bank, Head of Treasury at KBC Financial Products and vice-president in structured finance services at JPMorgan Chase Bank. Moorad is a Fellow of the Chartered Institute for Securities & Investment and a member of the Board of Governors of IFS-University College. He is Editor of Review of Financial Markets, and on the Editorial Boards of the Journal of Structured Finance, Qualitative Research in Financial Markets and American Securitization. He is author of The Principles of Banking (John Wiley & Sons 2012).