Liquidity Day 8: Funds Transfer Pricing (FTP) Explained - How Banks Price Liquidity
1 March 2026·12 min
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In this session of the Liquidity Management course from The Industry Portal, we explore one of the most important but least understood tools in modern banking: Funds Transfer Pricing, commonly known as FTP. While liquidity risk is often managed centrally by Treasury, FTP is the mechanism that ensures liquidity is considered across the entire organisation, embedded directly into pricing, performance measurement, and decision-making.
This lesson explains what FTP is, why banks use it, and how it acts as an internal market for liquidity. You will learn how FTP allocates the cost and value of funding between Treasury and business lines, ensuring that lending, deposit gathering, and trading activities reflect the true economic cost of liquidity.
We break down how FTP works in practice, showing how lending desks are charged for the funding they consume and how deposit-taking businesses are rewarded for providing stable funding. The session explains how FTP supports accurate product pricing, realistic profitability analysis, and better risk-adjusted decision-making across the bank.
You will also learn about different FTP design approaches, including pooled FTP, dual FTP where interest rate risk and liquidity risk are priced separately, and behavioural FTP that reflects expected rather than contractual maturities. We explain how these approaches help banks manage maturity mismatches, align with regulatory requirements such as LCR and NSFR, and support long-term balance sheet sustainability.
The session explores how FTP influences business behaviour by embedding liquidity discipline into everyday decisions. It shows how FTP supports regulatory compliance, feeds into ILAAP, and aligns Treasury strategy with commercial objectives. We also cover how FTP enhances performance management by revealing the true economic contribution of products, customers, and business lines.
Practical challenges are addressed throughout the lesson, including transparency, consistency, data quality, and governance. We explain how banks design credible FTP frameworks, the role of FTP committees, and why clear communication between Treasury, Risk, Finance, and the business is essential for FTP to work effectively.
Finally, the session looks ahead to emerging developments, including behavioural modelling, contingent liquidity pricing, digital banking impacts, and the growing link between FTP, ESG, and climate objectives. By the end of this video, you will understand how FTP transforms liquidity from a centralised risk into an enterprise-wide discipline that drives resilience, accountability, and value creation.
This session sets the stage for the next lesson in the course, where we examine Contingency Funding Plans and how banks prepare to respond when liquidity stress becomes real.
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