Ultimate access to all questions.
Explanation:
Best practices dictate that liquidity transfer pricing (LTP) should accurately allocate the costs, benefits, and risks of liquidity to the respective business lines, reflecting the bank's overall position. A pooled average cost of funds is considered an outdated and less accurate approach compared to matched-maturity pricing. Contingent obligations require a liquidity buffer regardless of drawdowns, so LTP should be applied to the committed but undrawn portion as well. Funding a liquidity cushion with long-term debt generally increases costs due to the term premium.
No comments yet.
A
The real costs of the bank’s liquidity cushion are best reduced through long-term funding.
B
LTP of contingent bank obligations, such as collateral calls and committed lines of credit, can only be conducted after the first drawdown.
C
A pooled average cost of funds approach is the most accurate LTP formula.
D
A liquidity transfer price should reflect the costs, benefits, and risks of the bank as a whole.