Reviewing current industry understanding and approach to FTP

Reviewing current industry understanding and approach to FTP

By Fitz Drummond, Director, Funds Transfer Pricing, Treasury, Deutsche Bank.

Fitz, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I manage Funds Transfer Pricing Methodology and Implementation at Deutsche Bank, with responsibility for continuous enhancement of the framework and pragmatic operational execution. During my 6 years at DB, I have also been responsible for the Liquidity Management of Derivatives, FX and Intraday, as well as managed the investment of the GBP liquidity buffers. Prior to joining DB, I was in Treasury at Goldman Sachs, where I worked in a number of areas including secured funding, currency funding, liquidity buffer management, and derivatives collateral management.

At the Liquidity Risk Management Forum, you will be sharing your insight on current industry understanding and approach to FTP. Why do you believe this is a key talking point in the industry right now and what can risk professionals gain from this insight?

Funding cost is one of the key drivers of business performance in the current market, as increased liquidity requirements force banks to fund more and for longer. Accurate attribution and allocation of cost of funding can make the difference between good and bad business selection decisions. It is therefore imperative that bank Treasury functions get this right, in terms of accuracy, transparency, granularity, and simplicity.

Can you explain some of the challenges and benefits of aligning FTP with NSFR and Pillar 2?

The key benefit arises from uniformity across the industry. In theory, it should increase transparency as all banks will be operating to the same ruleset and competition will not necessarily lead to systemic risks. The downside is that some of the rules in the regulatory framework are opaque and punitive, resulting in higher cost of funding and therefore higher transaction costs. Banks will have to actively determine their approach to alignment, which is gauged by the degree to which the effects of he regulatory requirements are priced through to products or even businesses, as well as the pricing approach used.

Why is it important to place accurate charges on FTP?

Cost of funding can be a determining factor in the decision to carry on with a business, a product, or a strategy. Deciding to close down a business based on inaccurate or not sufficiently granular cost information is simply unacceptable business practice, with far-reaching consequences.

What, in your opinion does the future hold for liquidity risk professionals, and how can they keep up with the increasing change?

I think the future is actually quite bright. There is still an abundance of problems to solve, and the best liquidity risk professionals are natural problem solvers. Also, liquidity risk as a discipline is still in its infancy, so until there are well-established models, practices, and rules as embedded as they are for credit risk and market risk, there will be work to do. I think technology will play a critical role in the development of this area, so alignment with technology development groups and a clear strategy for data, risk management, funding, and FTP infrastructure will prove a differentiator across the industry.

 

Want to know more? 

The Center for Financial professionals will address several of these key areas and more at the upcoming 7th Annual Liquidity Risk Management Forum taking place on 12 June in London. The forum will provide an exclusive platform for the industries finest to discuss the current liquidity risk landscape including regulatory requirements, markets trends and more. The event will include vital insight from leading CROs, Heads, Managing Directors and regulating bodies such as the European Central Bank. To view the full speaker line up, agenda and more please visit www.cefpro.com/liquidity.

Additionally for more information on registration please call +44 (0) 207 164 6582 or email us at marketing@cefpro.com.