Funds Transfer Pricing
Net Interest Income is the main performance metric for most financial institutions. Is the bank earning enough income to justify the capital allocated by shareholders? How much will NII be impacted by changes to interest rates and liquidity premiums? These are questions an institution must be able to answer in order to effectively manage NII across the various lines of business and through different rate cycles. This is done most effectively through introducing a funds transfer pricing process that is both robust and effective in immunizing the business units from interest rate and liquidity risks while transferring them to the mis-match center, where ALCO can effectively manage it.