Overview
The funds transfer pricing mechanism was designed in order to measure the performance of the bank and then attribute its PnL's to various risk factors.
The methodology creates a series of desks within the bank. Money is moved between the desks, and each desk charges the other desks a rate. The banks profits are then attributed to each desk for the service that it provides.
The easiest way to do the accounting is for each desk within the bank to create securities that are sold or traded to the other desks.
The examples below provide a simple demonstration of the principle.
Examples
- Deposits - beginning of the funds transfer process, bank funding using simple deposits.
- Loans - basic setup of funds transfer pricing and loans.
- Advanced Loans - attributing risk based PnL's.