Handbook of Asset and Liability Management: From models to optimal return strategies

Part II

Internal Transfer Pricing, Accounting and Auditing

Asset and liability managers deal with the balance sheet. The forecasting of future income requires a fine understanding of the accounting standards. The first chapters of this Part are devoted to the balance sheet and to the accrued accounting schemes (or “at historical cost”), to IFRS accounting and to full fair value accounting schemes.

The implementation of an internal system of internal transfer prices or of fund transfer prices (FTP) is the basis of asset and liability management.

This Part develops the FTP concept and provides some examples of FTP calculation introducing the important “péréquation” (or “perequation”) concept.

FTP implementation allows us to transform the ALM into an independent profit centre and to differentiate the incomes (financial results) arising from commercial businesses and the incomes arising from financial market risk positions.