Funds Transfer Pricing
I am disappointed in the OpEd (“Funds Transfer Pricing? Just Say No,” April) The author does not appear to have a thorough understanding of Funds Transfer Pricing, or at least did not fairly present it. While the comments made question the worth of FTP in a very visible manner, the valid points raised are related only to cost and overhead allocations. The author refers to FTP in its simplest sense. A preferable methodology (matched-term) is “the assignment of a “market-based alternative” rate so that the net contribution value of all funds provided or used is determined based on competitive rates at the time of transaction or account pricing.” An implication is made that banks should just manage against growth targets. That could incent managers to raise large amounts of overpriced CDs or underpriced loans, actions which would certainly not enhance profitability.
Betsy Chivinski
EVP, Corporate Controller
Fulton Financial Corp.
Lancaster, PA
The OpEd piece submitted by Chris Bled-soe was at least 50 percent incorrect. He was treating funds transfer pricing like it was the equivalent to cost allocations, which it is not. He states that low-cost deposit branches are hurt by FTP. This is exactly opposite of the truth; they are rewarded, receiving wholesale-rate funding credits. He states that banks don’t load FTP into the general ledger, so that they don’t have historical results. My bank loads FTP into the financial-reporting system by general ledger account for all periods, so this statement is also incorrect. In the organizational profitability reporting process that I manage, we do enhance our allocations over time, but we do not change assumptions to make sure branches do not lose money. What would be the point of that? Our organizational profitability reporting has led to many important strategic decisions, such as the development of enhanced personal-checking products and the consolidation of underperforming branches. Without FTP, there is no accurate product-profitability reporting, either, a critical tool for any bank. I have to make the assumption that the author has a technology background and does not understand finance.
Anonymous
VP, Financial Analysis Manager
New York-Based Bank
Editor Responds:
USB qualifies OpEd contributors by experience and their contributions’ topical relevance, but the opinion expressed is that of the author. Chris Bledsoe is a former banker and has 18 years of experience in the financial industry.
