What is Funds Transfer Pricing (FTP) ?

Defination:

A method used to individually measure how much each source of funding is contributing to overall profitability.The funds transfer pricing (FTP) process is most often used in the banking industry as a means of outlining the areas of strength and weakness withing the funding of the institution. FTP can also be used to indicate the profitability of the different product lines and each staff member, as well as act as a great medium for comparison between employees, branches, etc.

In other way we can explain that to guage FTP, banks can first establish a FTP curve. A general curve is calculated by plotting the relationship between yield to maturity and time to maturity, then adjusted to reflect the lending needs of each location. A rate is then assigned to each of the transactions that occur at the bank. For example, a five-year bond would have a different rate than a 10-year bond. Finally, all of the rates are entered into the FTP system.