Bank Valuation and Value Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk, 2nd Edition, 2nd Edition

CHAPTER 10

Fund Transfer Pricing: Foundation and Advanced Approaches

This chapter discusses the fund transfer price (FTP) used to evaluate the profitability of deposits and loans. The issue is as follows: in evaluating the profitability of deposits, the costs—the interest paid on deposits and the operating expenses allocated to deposits, such as employee time and information technology (IT) expenses—are known. However, the choice of a return on deposits is more problematic because deposits are used to finance various types of assets: consumer loans, corporate loans, interbank assets, bonds, and fixed assets. A revenue—a fund transfer price—must ...