PeopleSoft Funds Transfer Features

With Funds Transfer Pricing you can:

• Calculate a funds transfer pricing base rate:

  • For new instruments.

  • For instruments that are extended or renewed, using a blend of the old rate and the current interest rates charged for these types of products.

  • At the repricing anniversary for variable rate loans.

  • At the end of the reporting period for all instruments whose funds transfer pricing rate is reset each reporting period.

  • When funds transfer pricing repricing events are triggered by an external system.

• Calculate transfer prices on ledger account balances on detailed instrument balances, or on treasury position balances.

• Choose from among several methodologies to derive the maturity when calculating funds transfer pricing rates based on matched maturity funding:

  • Strip funding

    This approach matches the projected cash for the instrument in each time period, with a specific cost of funds rate for that cash flow. The funds transfer pricing rate for the instrument is then calculated by weighting the cost of funds rate for the cash flow in each time period by the term of the cash flow.

  • Duration matching

    This approach calculates the maturity of a pool of instruments. It uses the standard algorithms for calculating the cash flow duration, modified duration, or effective duration of the projected cash flows. The duration measure that you select is then used as the term for matching the maturity of the instruments. Duration matching is particularly effective when transfer pricing pools of relatively homogeneous instruments.

  • Average life

    This approach calculates the effective term of an amortizing product. Average life is the period of time required for one half of the principal balance to be repaid based on projected cash flows.

  • Repricing frequency

    For variable rate products, the primary interest rate exposure when funding instruments is limited to the length of time it takes for the instrument to reprice—that is, the interest rate is adjusted to current market rates. For these products, you can match the term used to calculate the funds transfer pricing rate to the repricing period of the underlying instrument. The funds transfer pricing system automatically resets the funds transfer pricing rate at the same time intervals and uses the same term as the instrument's repricing schedule. The repricing period can be set based on a periodic repricing frequency or specific scheduled repricing dates.

• Transfer price based on user-defined term or rates.

  In addition to using one of several matched maturity concepts, Funds Transfer Pricing gives you the flexibility to specify terms or rates to be used for transfer pricing. You can use the contractual term to maturity, an arbitrary term that is user-defined, or a specific funds transfer pricing cost of funds rate to be used for a set of instruments or ledger accounts.

• Use option adjusted costs and option adjusted spreads to calculate transfer prices.

  This enables you to accurately price the volatility of financial products with embedded options, such as prepayment options on loans.

• Transfer price instruments originated with intent to sell by applying a term based on their expected holding period.

• Model durations for asset and liability products of indeterminate maturity (such as demand deposits, savings, NOW accounts, equity lines, bank cards) and balance sheet accounts (such as receivables, float and reserves, fixed assets, payables, equity) for more accurate transfer pricing.

• Apply any number of adjustments to the basic funds transfer pricing rate.

  For example, you can apply adjustments for liquidity, embedded options, or incentives to the line managers. The adjustments can be a fixed rate, or a fixed amount, and are calculated separately from the base funds transfer pricing rate, so they can be easily identified and reported. You can also apply event-based funds transfer pricing adjustments—that is, define a funds transfer pricing adjustment rule that is only applied if a constraint is satisfied.

• Apply a funds transfer pricing adjustment for commitment period rate lock options that enable the customer to receive the minimum interest rate available during a commitment period.

  The commitment period rate lock adjustment is calculated as the difference between the minimum posted rates available during the commitment period, and the actual rate that was in effect on the start date.

• Calculate the cost of allocated capital using the cost of funds rate for equity.

  The cost of capital can be calculated and reported separately from the funding costs of an instrument or ledger account balance.

• Use the Stratification Engine to group millions of individual instruments with the same financial characteristics into a much smaller number of instrument pools.

  This dramatically improves the processing time for calculating the funds transfer pricing rates. It also enables you to use advanced analytics and modeling techniques to calculate the effective maturity of a large number of instruments within acceptable processing time windows.

• Perform multiple modeling (what-if analyses), for example using behavioral models (interest rate sensitivity) or product pricing models.

• Apply break fund charges for loans that prepay, as well as for cancelled commitments.

  Apply a onetime break fund assessment or accrue break fund charges over the term of the loan. Allow the user to define the amortization period for the break fund charges.

• Reset the funds transfer pricing rule, funds transfer pricing base rate and funds transfer pricing adjustments for existing instruments whose cash flow characteristics have changed—for example, when a loan converts from a variable to a fixed rate loan.

• Transfer price forward commitments.

  These are typically large, fixed rate commercial credits that are usually match funded (guaranteed rates) prior to the booking of the transaction. Because of their size, these loans are literally matched at the margin, and the rate is locked in during negotiations. These transactions are therefore funded and transfer priced as of their commitment date, using a forward rate curve.

• Calculate transfer prices for forecasted balances.

  You can calculate funds transfer pricing charges and credits for forecasted balances during planning and simulation runs.

• Segment transfer pricing balances and apply different transfer price rates based on varying volatilities.

  Use balance segmentation for indeterminate maturity balances, such as checking accounts, accounts receivable, credit card balances. The core portion of savings accounts may be considered stable, with an funds transfer pricing rate based on a medium or long term cost of funds, while the remaining portion is considered volatile, with an funds transfer pricing rate based on a shorter term cost of funds.

• Use effective dating for assumptions, which provides you with a history of assumptions to help you track rules and make inquiries concerning results.

• Assign transfer pricing rules based on account tree nodes.

  For example, if the other assets node included multiple ledger accounts, you could choose to apply a funds transfer pricing rule to the tree node that represents all other assets, rather than to each ledger account individually.

• Perform multiple dimensional analyses of profitability.

  For example, you can use Funds Transfer Pricing to evaluate product profitability for each customer segment, thereby providing insights into bundling strategies and loss leadership relationships.