Funds transfer pricing (FTP) is a process that can help banks better manage liquidity risk and improve balance sheet management under Basel III regulations. An FTP process prices deposits and matches them with future asset demands to maintain a liquid asset buffer. It also aims to enhance revenue, keep costs low, and improve net interest income. Having a strong FTP process is important for liquidity management because without it, liquidity risk increases and products may become illiquid, as was the case for UBS bank during the financial crisis.

1. hisham's writing pad/liquidity risk/FTP
BASLE III,
LIQUIDITY
&
Funds Transfer Pricing

2. hisham's writing pad/liquidity risk/FTP
WHAT IS FTP IN THE CURRENT
CONTEXT
●
Forward looking,
whereby deposit
rates are
matched with
assets demanded
in the future
●
Improve
Balance
Sheet
Management
●
Value addition to
P&L, through
competitive
products amidst
a climate of low
interest rates
●
Maintain a
liquid
assets
buffer
●
Not merely
contractual
but take into
account
behavioral
●
Enhance
revenue,
keep cost
low and
improve NII

3. hisham's writing pad/liquidity risk/FTP
WHY IS AN FTP PROCESS NEEDED
FOR LIQUIDITY MANAGEMENT
●
UBS a Swiss Bank is
an example of having
a poor FTP process
●
Structured Products
by UBS thrived on the
rating of the institution
and not the product
●
Credit risk concerns
increases liquidity
risk as products tend
to become illiquid