Thursday, May 24, 2012

DERMINE Jean
Fund Transfer Pricing for Deposits and Loans, Foundation and Advanced
INSEAD Working Paper 2012/55/FIN

Fund transfer pricing (FTP) is fundamental to evaluate the profitability of deposits and loans. Following the global banking crisis, this paper seeks to draw attention to five issues that have been previously ignored: rationing on the interbank market, the creation of a Basel III contingency liquidity buffer, the necessity to adjust fund transfer pricing to the credit riskiness of specific assets of the bank, the need to include a liquidity premium in the case of long-term funding, and finally the choice of a consistent methodology to incorporate the credit spread on the bank’s own debt due to the perceived risk of bank default.