Internal Funds Transfer Pricing Of Commercial Bank And And Its Application In Management Of Interest Rate Risk

Funds Transfer Pricing (FTP) is an internal funds management model in which money center transfers banks’ funds according to the established rules with each business unit, charges the departments who using funds for cost and pays value to the departments who raising funds. It can achieve several goals such as centralizing interest rate risk’s management, calculating cost and benefit accurately, improving product pricing ability and optimizing bank’s performance appraisal system.Since the 1970s, Bank of America has established a new fund management model to deal with the interest rate marketization. Through the development of nearly 40 years, FTP has been widely used by foreign advanced commercial banks and plays a more and more important role in many fields of management such as profitability analysis, product pricing and performance appraisal gradually. However, there are few studies on the FTP’s application in the management of interest rate risk of the commercial banks in the theoretical and practical field nowadays.With the deepening of interest rate marketization in our country, banks will face more and more interest rate risk. At the same time, there are several realistic problems in domestic commercial banks such as the lag of risk-control concept, the single profiting model, the lack of professional talents and management tools. How to establish an effective management system in commercial banks in order to enhance the level of the management of interest rate risk in the transition period has become an hot topic in the field of domestic commercial banks.Therefore, based on the developing experience of foreign market and the current situation of the financial market in China, this paper states how to establish internal funds transfer pricing system for China’s commercial banks in detail and studies on FTP’s application in the management of interest rate risk of the commercial bank. Through the specific cases, detailed data and the comparative analysis of the different effect in the prevention of interest rate risk of three kinds of pricing model, we have a deep insight into the operation principle on which the FTP system manages the interest rate risk.