Balance Sheet Shaping Through Decision Model and the Role of the Funds Transfer Pricing Process

The banking industry is currently facing a number of challenges driven by the regulatory requirements, low or even negative interest rates and margin compression. As a result active and conscious balance sheet management has increased in importance and banks are required to optimize and allocate resources very precisely to their businesses. This article lunches the hypotheses that the application of the optimization technique improves the management of the banking book in terms of quantifiable impact on a bank’s P&L and that the Funds Transfer Pricing process could be used as a mean to achieve the target position of a bank. It proposes two steps approach to prove the above hypotheses, i.e. the application of the decision model and the FTP process. In addition, the article provides the reader with the main concepts of the FTP framework and details regarding the Balance Sheet shaping.