Funds Transfer Pricing for Financial Institutions

Annotation Establishing and maintaining effective transfer pricing policies is a key challenge in today's increasingly competitive international financial services sector. There are numerous issues involved, from the requirements of shareholders and risk management to the allocation of capital. There are also many different techniques for establishing efficient transfer pricing systems within an organization. This illuminating handbook provides a thorough introduction to transfer pricing and its uses within financial organizations, as well as a clear analysis of all the issues involved. Transfer pricing is so complex and variable that there can be no definitive blueprint for success: however, in this book John Smullen has provided a vital contribution to the debate and a much-needed clarification of this important topic. Some of the areas covered: What transfer pricing is and why it is used Why transfer prices are so appropriate for financial institutions Why each organization needs to approach the introduction of transfer prices differently; How transfer pricing works in commercial organizations; The different types of transfer price; Specific analysis of the transfer pricing of funds, capital and derivatives; How to evaluate risk adjusted performance measures; The complexities of estimating marginal costs and revenues; A framework for understanding the motivation of shareholders, managers and regulators; How transfer pricing works as part of management information strategy; This lucid and authoritative handbook will help you to: Understand the different techniques used in transfer pricing; Establish transfer prices in line with your organization's strategy and objectives; Make sound decisions, minimise risk and achieve better outcomes This is a book for people involved in raising and loaning funds in today's global markets who wants to understand the issues involved in transfer pricing and the techniques required. It will be used by banking, investment, insurance and other financial organizations worldwide. Cover Contents Preface PART 1: AN INTRODUCTION TO TRANSFER PRICING IN FINANCIAL INSTITUTIONS 1. What is transfer pricing? Introduction The definition of transfer pricing Motives for transfer pricing The focus of the book 2. The general theory of transfer pricing Introduction The economist's perception of optimal transfer prices Comments on the simple optimal pricing model Transfer pricing: the accountant's perspective Conclusions 3. Transfer pricing in commercial organisations Introduction Single country transfer pricing systems Multinational transfer pricing practices Comments on transfer pricing experience 4. The uses of transfer pricing in financial organisations Introduction The nature of transfer prices Uses of transfer pricing Different types of transfer price Conclusions PART 2: SETTING TRANSFER PRICES IN FINANCIAL INSTITUTIONS 5. Integrating transfer prices with organisational structure Introduction Financial information: the strategic perspective The interrelationships of units Conclusions 6. Attitudes to risk Introduction The traditional view of risk Market-based attitudes to risk Conclusions PART 3: SPECIFIC TRANSFER PRICES 7. Transfer prices based on operating expenses Introduction The principles of activity-based costing The distinction between transfer pricing and cost allocation Problems in using activity-based costing information as part of a transfer pricing system The uses of cost-based information for transfer pricing Conclusions on the use of costing information Comparing financial and non-financial organisations 8. Transfer pricing the cost of funds: a general perspective Introduction Borrowing and lending, investing and funding Transfer pricing and time Comments on transfer pricing Conclusions 9. The transfer price of funds: some perspectives on wholesale and retail funding Introduction To what extent are wholesale and retail funding equivalent? Price making Effective duration of funds Differences between wholesale and retail customers Discontinuities in wholesale funding Conclusions 10. The transfer pricing of capital Introduction Capital as funding Regulatory capital Capital at risk Conclusions 11. Risk adjusted performance measures: the transfer price of investment portfolios Introduction General issues in relation to RAPMs The measures Problems with the measures Conclusions 12. Risk adjusted performance measures: return on risk adjusted capital and associated measures Introduction RORAC Evaluation of RORAC style measures Is the RORAC approach totally misplaced? Conclusions 13. Risk adjusted performance measures: a critical overview Introduction RAPMs and investors' desires RAPMs as statistics RAPMs and incrementality Conclusions 14. The transfer pricing of derivatives Introduction The pricing of financial. Establishing and maintaining effective transfer pricing policies is a key challenge in today's increasingly competitive international financial services sector. There are numerous issues involved, from the requirements of shareholders and risk management to the allocation of capital. There are also many different techniques for establishing efficient transfer pricing systems within an organisation.

This illuminating handbook provides a thorough introduction to transfer pricing and its uses within financial organisations, as well as a clear analysis of all the issues involved. Transfer pricing is so complex and variable that there can be no definitive blueprint for success: however, in this book John Smullen has provided a vital contribution to the debate and a much-needed clarification of this important topic.

Some of the areas covered:

• What transfer pricing is and why it is used
• Why transfer prices are so appropriate for financial institutions
• Why each organisation needs to approach the introduction of transfer prices differently
• How transfer pricing works in commercial organisations
• The different types of transfer price
• Specific analysis of the transfer pricing of funds, capital and derivatives
• How to evaluate risk adjusted performance measures
• The complexities of estimating marginal costs and revenues
• A framework for understanding the motivation of shareholders, managers and regulators
• How transfer pricing works as part of management information strategy

This lucid and authoritative handbook will help you to:

• Understand the different techniques used in transfer pricing
• Establish transfer prices in line with your organisation's strategy and objectives
• Make sound decisions, minimise risk and achieve better outcomes

This is a book for people involved in raising and loaning funds in today's global markets who wants to understand the issues involved in transfer pricing and the techniques required. It will be used by banking, investment, insurance and other financial organisations worldwide.

• An authoritative and detailed survey of transfer pricing in the financial sector
• A clear exploration by an expert in the field
• A full description of the issues involved and the techniques required

Establishing and maintaining effective transfer pricing policies is a key challenge in today's increasingly competitive international financial services sector. There are numerous issues involved, from the requirements of shareholders and risk management to the allocation of capital. There are also many different techniques for establishing efficient transfer pricing systems within an organisation. This illuminating handbook provides a thorough introduction to transfer pricing and its uses within financial organisations, as well as a clear analysis of all the issues involved. Transfer pricing is so complex and variable that there can be no definitive blueprint for success: however, in this book John Smullen has provided a vital contribution to the debate and a much-needed clarification of this important topic. Some of the areas covered: What transfer pricing is and why it is used Why transfer prices are so appropriate for financial institutions Why each organisation needs to approach the introduction of transfer prices differently How transfer pricing works in commercial organisations The different types of transfer price Specific analysis of the transfer pricing of funds, capital and derivatives How to evaluate risk adjusted performance measures The complexities of estimating marginal costs and revenues A framework for understanding the motivation of shareholders, managers and regulators How transfer pricing works as part of management information strategy This lucid and authoritative handbook will help you to: Understand the different techniques used in transfer pricing Establish transfer prices in line with your organisation's strategy and objectives Make sound decisions, minimise risk and achieve better outcomes This is a book for people involved in raising and loaning funds in today's global markets who wants to understand the issues involved in transfer pricing and the techniques required. It will be used by banking, investment, insurance and other financial organisations worldwide. An authoritative and detailed survey of transfer pricing in the financial sector A clear exploration by an expert in the field A full description of the issues involved and the techniques required Preliminaries......Page 2 Contents......Page 8 1. What is transfer pricing?......Page 16 2. The general theory of transfer pricing......Page 21 3. Transfer pricing in commercial organisations......Page 31 4. The uses of transfer pricing in financial organisations......Page 34 5. Integrating transfer prices with organisational structure......Page 48 6. Attitudes to risk......Page 53 7. Transfer prices based on operating expenses......Page 66 8. Transfer pricing the cost of funds: a general perspective......Page 72 9. The transfer price of funds: some perspectives on wholesale and retail funding......Page 79 10. The transfer pricing of capital......Page 84 11. Risk adjusted performance measures: the transfer price of investment......Page 92 12. Risk adjusted performance measures: return on risk adjusted capital and associated measures......Page 103 13. Risk adjusted performance measures: a critical overview......Page 110 14. The transfer pricing of derivatives......Page 116 15. Optimal bank modelling for transfer pricing......Page 124 16. Transfer pricing and management information strategy......Page 132 17. Issues and conclusions......Page 142 Bibliography......Page 147 Index......Page 158 A cutting-edge study of transfer pricing in the increasingly competitive financial services sector. It examines the many issues involved and suggests different techniques for establishing efficient transfer pricing systems. This book is essential reading for all organisations that raise and loan funds in today's global markets. A cutting-edge study of transfer pricing in the increasingly competitive financial services sector. It examines the many issues involved and suggests different techniques for establishing efficient transfer pricing systems. This book is essential reading for all organisations that raise and loan funds in the global markets.