Overview
When a bank makes a loan, the loan is originated by a particular department in the bank, such as auto loan group, construction loans etc...
The loan is funded with money provided by the bank's treasury. (who raised the money either by receving money from the deposit group, or borrowing it on the open market)
This example continues the example in deposit view where the deposit team has raised $100 in deposits, and lent it to the treasury.
Treasury View
After the treasury has taken in $100 from the deposit group, it then holds $100 cash that it needs to invest. In the example given, the treasury invests the case in the US Treasury Security, however, it may instead give the money to one of the banks lending groups.
In this case, lets assume that the banks auto group can lend the money out as part of an auto loan. In such a case, the treasury makes a loan to the auto group, so that its books now look like.
As a general rule, the treasury should charge the auto group the rate that the bank would be charged to borrow the same amount of money, for the term. That is, if the auto loan is a five year loan, the auto loan group should be charged the same rate that the bank could borrow the funding for a five year term.
Auto Group View
The auto loan group borrows the money that it needs to fund its auto loan, from the treasury department. Its balance sheet then looks like the following:
The rate charged the auto group is the rate that the bank receives in the open market. That means that for the auto loan group to be profitable, it needs to charge a rate higher than the rate it receives from the treasury. (see loan pricing)
Accounting for Risk
The above example is sufficient to create a basic mechanism for attributing bank PnL to the various departments, however, it does not effectively measure PnL due to various risk exposures. That requires a more complex structure, such as detailed in advanced loan attribution.