A Study On The Issues In Funds Transfer Pricing Of Commercial Banks

Commercial bank Funds Transfer Pricing (FTP) is a necessary way for commercial banks’ asset-liability management and financial accounting management, also the important way to control the internal cash-flow, to develop the commercial banks’ management quality. The FTP is also the important parts of commercial banks’ accounting management, also affecting the commercial banks’ operational cost、risk control、optimization of the commercial bank funds and profits. The analysis of the Chinese commercial banks’FTP is just on the beginning, because of the complex of the FTP Model, it is an unknown place to many scholars. How many basic theoriescan be used to explain FTP? What does FTP system including about? Dose the model can increase the commercial banks’ efficiency? How to use the result of FTP for analysising? Based on the above consideration, this paper will answer the above issuess.This Paper first study the background and significanceof FTP, learning from the researches of domestic scholars and abroad on the FTP, in order to theoretically find the evidence of the FTP affecting the bank efficiency. By empirical research on the branches of state-owned commercial banks, whether FTP has an impact on bank efficiency.The paper also make a case study on domestic commercial bank. Finally, summaries suggestions and pointed out the direction of future research.Paper is divided into six chapters:Chapter1:Introduction. Introducing the research background, significance, research status, research ideas, research methods and innovation.Chapter2:The commercial bank FTP basic theories. This chapter firstly makes a literature review, then Studies the transaction cost theory, the internal market theory and the principal-agent theory, and using the above theory to explain the FTP.Study founds that commercial banks in the implementation of the FTP process to spend all kinds of static costs, such as data collection and extraction costs, system development costs, the cost of model development and operation of maintenance costs, as well as various types of dynamic costs such as dynamic adjustments in the implementation process, and monitoring costs.Internal market theory suggests that the internal price is not only the standard for mearsuring the internal benefits and costs, but also the influencing factors of behavior; internal pricing is not only a problem of the calculation and optimization of the internal price level, is the main behavior of internal control and an integral and organic part of the coordination process. This paper presents the formulation of FTP to be competitive and cooperative relations according to the treasurer of the bank’s internal business units to determine.The principal-agent theory suggests that the existence of asymmetric information between principal and agent, due to asymmetric information, leading to adverse selection and moral hazard. Branches of commercial banks as an agent, relative to the higher line, with a significant information advantage of their own in which the external environment, competition and challenges facing its own advantages and disadvantages to understand and become familiar with the extent of far more than the superior line. For various reasons, the branches have no incentive to report all the information to the higher line, thus the higher line on the regional market and branch information is incomplete, even if the branches will report the information to the higher line, the screening also need a certain cost information, so the view from the total branch banks in the implementation of the FTP due to asymmetric information in performance measurement is also facing many complex issues. Such as giving notes margin deposits with high income arbitrage, resulted in the bank branches of adverse selection, not only did not absorb real deposits through their own efforts, but inflated deposits.Chapter3:The commercial bank FTP system.This chapter firstly describes the parts and total funds management methods. Then studies the FTP mechanism, including a single pool of funds method, the multiple pools offunds method and duration matching method.Single pol of capital method is not conducive to the banks to organize to maximize profits without considering the duration of factors, can not be guaranteed a fair and impartial assessment of performance of all operators; Multiple pool model taking into account the maturity mismatch of interest rate risk to the bank, but the disadvantage is that may be redundant or insufficient funds in the pool, Aassets and liabilities for the same period, if there are different characteristics of the interest rate will also have the risk; duration matching method is relatively complex and the most effective model for the majority of foreign.The commercial banks are adopting this approach. Matching pattern in the full sense of the period, the treasurer will enter the capital market to raise funds for the new business assets, the funds raised in the period and interest-bearing way fully consistent with the corresponding asset, its purpose is to The interest rate lock, to raise funds to maintain a stable source of funding and a stable interest rate and loan period, the elimination of exposure, thus completely avoid interest rate risk and liquidity risk faced by the commercial banks.There are many FTP methods. After decades of development, commercial banks have adopted the average cost method, the marginal cost method, internal funds, the yield curve method, the fixed spreads method and the cash flow matching method.The Chapter4:The influence of FTP to commercial banks’efficiency. By studying the the efficiency of commercial banks to prove that the effection of the implementation of the FTP. This chapter first introduces the meaning and classification of bank efficiencies are described in detail. Then studied the parameters of the assessment of the banking efficiency and non-parametric methods.The two methods were compared with each other. Finally, through state-owned commercial banks in a province under the jurisdiction of the two branches of the2008-2011panel data to conduct empirical research to prove that the implementation of the FTP has a positive impact on bank efficiency.The Chapter5:Implementation and application of FTP in a state-owned commercial bankThis chapter describes a state-owned commercial bank how to implement an FTP, and analyzing the FTP data for business.The Chapter6:Conclusions, recommendations and research prospects. The basic conclusions and innovation of this chapter to the full summary of the commercial banks in China to implement FTP recommendations based on research findings, and finally make recommendations for improvement and research directions for the lack of the paper.This paper studies the following conclusions: Firstly, on the basis of FTP basic theoretical research, this paper presents the internal funds transfer pricing-making should consider about the treasurer of the bank’s and the competitive relations according to the internal business units to determine.As a cooperation-oriented internal market, we can use the the standard cost method or the actual cost method. As a competition-oriented internal market, we can choose the bidding method、the external market price (less discount)、 cost-plus method or consulting method.Secondly, the total funds management model will instead of parts funds mamagement model. The duration matching method is the best methods.Most domestic commercial banks use Yield curve method, but cash flow matching method is accurater.Thirdly, the higher the proportion of internal funds transfer the balance of payments accounted for the main business revenue and expenditure, the higher the efficiency of commercial banks. The higher bank stability, the greater positive impact on the efficiency of commercial banks. Asset size and deposit ratio does not significantly impact the efficiency of commercial banks. However, commercial banks and institutions, can not simply add the internal funds transfer the balance of payments, bank loan ratio and other indicators are the regulatory requirements.The last, the proceeds of the loan business depends primarily on the duration of the loan business, the level of interest rate fluctuations and credit ratings of three factors.The size of the branches profitability, is determined not onlyb by the volume of business and the savings and loan spreads, the more closely buy the business structure and FTP price-oriented matching.The innovation of this paper is mainly reflected in three aspects.Firstly, the theoretical analysis of the commercial banks’ FTP mechanism. Defining the principle of pricing based on competition and cooperation of the treasure and management units, making up for theoretical studies for the commercial banks’ internal transfer pricing blank.Secondly, the study of effect with FTP. In this paper, the paper measures the efficiency of a commercial bank, and Examine the role of FTP for enhancing banks efficiency.The third is the application of the commercial banks’ FTP data. Commercial bank FTP data usually was automatically produced by the system processing, data users are often limited to the interpretation of the report level and profitability analysis of the results, case studies, set up a variety of scenes, through internal funds transfer pricing data analysis business line net interest margin and asset and liability structure adjustment.