Fund Transfer Pricing Models and Bank Funding Curves
Summary
The document discusses the modelling questions that arise in bank fund transfer pricing (FTP). It identifies a general workflow: choose representative products to define points on a rate grid, select an interpolation method, and make qualitative adjustments for business needs. The questions raised include estimating bank credit spreads for short-dated funding and setting bid–ask spreads for the bank’s funding curve, as well as adapting FTP approaches to the institution’s business mix.
The responses do not provide worked methods or evidence for those modelling choices. One recommends several papers and presentations on commercial-bank FTP, funding curves, deposits and loans, and risk-adjusted performance measurement, based on the respondent’s view that a sufficiently useful book was hard to find. Another points to a book on quantitative replication portfolios and forward-looking FTP rates for core deposits. As a result, the document is best read as an orientation to topics and possible reading leads, not as a technical guide; it does not specify how to derive spreads or calibrate a curve.
Key ideas
- FTP modelling can use representative products to establish points on a rate grid.
- Interpolation and business-specific qualitative adjustments are part of the described workflow.
- Short-term credit spreads and funding-curve bid–ask spreads are identified as open modelling questions.
- The responses recommend papers and a book but do not explain or validate specific modelling techniques.
- FTP methods may need to reflect a bank’s business mix.
Tags
Full text
# Looking for a recommendation for a Fund Transfer Pricing modelling book # Looking for a recommendation for a Fund Transfer Pricing modelling book Recently I started working in a bank as a modeler, one of the possible topic is FTP - Fund Transfer Pricing. After I studied that subject a little on wiki and read a website or two in that field I gained a little knowledge in that area. But apparently very little. I mean, when I understood is the purpose of FTP, and the approach in general, such as find representative products to decide the points on the grid, choose interpolation method, then do some qualitative adjustments due to business needs. I feel that their language is yet unclear. I am looking for a book that bridges this gap. I hope it could explain where modelling come into place, and what are the industry practices. for example, how to - Derive an appropriate bank credit spread for funds which are 12 Months and below? - Obtain an appropriate bid ask spread for the Bank’s funding curve? Also I hope it gives some more detailed part on the business side, such as how the approaches shall change according to each bank/financial institute's main business. ## Answer by Matt Wolf (score 6, accepted) https://quant.stackexchange.com/a/8614 I have honestly not come across a good book (or good enough review to make me buy the book) on Fund Transfer Pricing. While it is not my career focus, I had to familiarize myself a bit with the topic because of certain requirements involving funding trading operations and the performance of funding specific operations. Personally I would recommend the following papers and presentation material because I read through them myself and I feel it answers several of your questions (bank credit spreads, funding curves and obtain funding in the market, some papers directly cover FTP in commercial banks (which I assume would tangent your project): In no particular order: - Fund TransferPricing in a Commercial Bank - Fund Transfer Pricing by Ernst & Young - Revisiting Fund Transfer Pricing - FTP and Risk-adjusted Performance Measurement - Future of Bank Treasury Management - FTP for Deposits and Loans, Foundation and Advanced ## Answer by Ali Fathi (score 1) https://quant.stackexchange.com/a/41138 This book is nice if your interested in a more quantitative approach to replicating portfolio and forward looking FTP rate for core-deposits
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