Funds Transfer Pricing (FTP) Explained | How Banks Really Measure Profitability
19 September 2026·20 min
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What is Funds Transfer Pricing (FTP), and why is it one of the most important concepts in bank Treasury, ALM and profitability management?
In this complete introduction to Funds Transfer Pricing, we break down how banks use FTP to price funding, liquidity and interest rate risk across the balance sheet — and why getting it wrong can make profitable products look unprofitable, distort business performance and lead to poor strategic decisions.
Using practical banking examples, including mortgages, customer deposits and Treasury funding, you'll learn how FTP works in practice and why it sits at the heart of effective Asset Liability Management (ALM).
In this session, you'll learn:
• What Funds Transfer Pricing (FTP) actually is
• Why banks need an FTP framework
• How FTP works for assets and liabilities
• How Treasury charges businesses for funding
• How deposits receive an internal FTP credit
• The difference between customer margin and true economic profitability
• How funding, liquidity and interest rate risk are transferred to Treasury
• Why average funding cost can give the wrong profitability signal
• How FTP affects product pricing and business-line P&L
• Why FTP should not be used as a Treasury profit centre
• Why FTP is not simply a cost allocation exercise
• How poor FTP can distort product profitability
• The relationship between FTP, Treasury and Asset Liability Management
• How FTP influences balance-sheet strategy
• Why governance and regulation matter when designing an FTP framework
A simple FTP example
Imagine a bank originates a five-year fixed-rate mortgage at 4.75%.
Comparing this against an average deposit cost of 2.80% might suggest the bank is earning a spread of 1.95%.
But that isn't necessarily the true economics.
If the appropriate internal funding price is actually 4.10%, the mortgage business is generating only 65 basis points of spread before credit risk, operating costs, capital and other relevant costs.
Nothing about the customer changed.
Nothing about the mortgage changed.
The bank simply priced the balance-sheet economics correctly.
That is what Funds Transfer Pricing is designed to do.
FTP allows banks to separate the economics controlled by customer-facing businesses from the funding, liquidity and interest rate risks that Treasury manages centrally.
Without a credible FTP framework, a bank can misprice products, reward the wrong behaviour, distort business-line profitability and potentially steer billions of pounds of balance-sheet growth using the wrong economic signals.
Who is this course for?
This session is particularly useful for professionals working in:
• Bank Treasury
• Asset Liability Management (ALM)
• Funds Transfer Pricing (FTP)
• Liquidity Risk
• Interest Rate Risk in the Banking Book (IRRBB)
• Balance Sheet Management
• Banking Risk
• Financial Planning & Analysis
• Product Pricing
• Banking Finance
• Regulatory Reporting
• Corporate and Retail Banking
Whether you're new to FTP or already working in Treasury or ALM, this course is designed to build an intuitive understanding before moving into the more technical aspects of FTP methodology.
Continue learning
This is part of our comprehensive Funds Transfer Pricing course, where we'll go deeper into FTP curves, matched-maturity pricing, liquidity premiums, behavioural assumptions, non-maturing deposits, optionality, Treasury P&L, governance, regulation and practical FTP framework design.
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