Course Schedule and Contents

Week 1 – Tuesday 14th October

Introduction, Stakeholder Alignment & FTP Methodologies 

Introduction

• Definition, objectives, and purpose
• FTP objectives and implementation
• FTP’s role in balance sheet optimisation and profitability measurement
• Key stakeholders: Business, Finance, Risk, Treasury, ALCO
• Transfer pricing mechanism design and whether to adopt a centralised system
• Best practices for introducing a robust FTP model
• Case study: What is NIM in business units and ALM?

Overview of FTP Methodologies

• Single-rate vs pooled methodology
• Matched maturity vs pooled funding
• Building blocks of FTP rates: commercial margins, ALM margins
• FTP in liquidity and interest rate risk management
• Types of FTP: base curve, term liquidity premium, FTP for soft vs hard currencies, maturity-matched marginal cost
• Discussion: Treasury as a profit or service centre?

FTP for Balance Sheet Optimisation

• ALM optimisation – balancing risk and return
• The role of FTP in the optimisation exercise
• ALM target position
• FTP as a steering tool for business lines

Practical Example: Case study on optimising deposit & lending strategies using FTP.

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Week 2: Monday 20th October

Starts with Q&A session from week 1

FTP’s Role in Product Pricing & Incentive Structures

Impact of FTP on Product Pricing

• • FTP as a driver of strategic product decisions
  • Product pricing for loans and deposits
  • Strategic FTP and business unit profitability
  • Incentives for deposit gathering and lending strategies

FTP Incentive Structures

• • Techniques for balance sheet shaping through FTP
  • Incentive premiums, behaviouralisation, and management overlays
  • Aligning FTP principles with business incentives

Practical Examples:

• Calculation the profitability of the product and defining return on equity
• Designing incentive structures for different business units

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Week 3: Tuesday 28th October

Starts with Q&A session from week 2

Advanced FTP Techniques, Behavioural Modelling & Curve Construction

Advanced FTP Methodologies

• • Theoretical underpinnings of advanced FTP
  • Behavioural modelling of non-maturing deposits (NMDs) and optionalities
  • Impact on FTP rates and maturity assumptions
  • Inclusion of prepayment optionality into FTP

Constructing FTP Curves

• • Building FTP term structures and risk-free proxies
  • Construction of a blended FTP curve for a bank with access to the retail market only
  • Construction of blended FTP curve for a bank with access both to retail and wholesale funding markets
  • Constructing FTP curve based on forecasted funding costs

Practical Example: Hands-on exercise constructing an FTP curve using market and bank data.

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Week 4: Tuesday 4th November

Starts with Q&A session from week 3

FTP, Liquidity Management, Capital Allocation, and ALCO Governance

FTP and Liquidity Pricing

• • Pricing liquidity and its impact on profitability
  • Types of premiums: liquidity, contingent liquidity, term credit premium
  • Quantifying Contingent Liquidity Costs (COL)

FTP and Capital Allocation

• • How to FTP capital and allocate cost to business lines
  • Avoiding regulatory arbitrage in capital transfer pricing

Regulatory Considerations

• • FTP alignment with Basel III/IV
  • Incorporation of LCR/NSFR and stress testing scenarios

Role of ALM & ALCO

• • Structure and function of ALM in FTP frameworks
  • ALCO’s role in setting policies, adjusting FTP for market changes, and governance
  • Creating a transparent governance structure

Practical Examples:

• Pricing a loan portfolio incorporating FTP liquidity premiums
• FTP and assets pricing
• FTP and deposits pricing
• FTP and off -balance sheet

Concludes with Q&A session for week 4