In the previous blog we discussed the challenges facing many financial institutions in today’s marketplace, including substantial regulatory requirements, significant competition, increased consumer and technology demands, and inconsistent financial results.
As community bankers evaluate the most effective ways to achieve their profitability goals, the importance of calculating and tracking funds transfer pricing (FTP) should not be overlooked. Traditionally, FTP, a process used to evaluate the performance of a bank’s different activities and operations, has been used in some capacity to help financial institutions better determine the profitability of individual customers, products, organizational units and channels. But typically, banks are not leveraging FTP to its fullest potential.
On the one hand, the prevalence of stagnant net interest margins across the industry suggests that community institutions would be desperate to get an accurate picture of exactly where the potential profits lie within their product lines and customer bases, and to work to capitalize on those opportunities. However, what passes for profitability analysis in many institutions today probably isn’t going to reveal those answers.
