The Role of a Reference Yield Fitting Technique in the Fund Transfer Pricing Mechanism

The funds transfer pricing (FTP) structure has become a base for the process of asset and liability management (ALM) in a modern bank. According to the supervisory documents, FTP is thus a regulatory constraint and an important tool in the ALM process. What is more institutions should have an adequate internal transfer pricing mechanism based on reference rate delivered from the market in a form of the yield curve. The fragility and sensitivity of the reference yield in time could have huge consequences for the liquidity risk management process.