The Study Of Funds Transfer Pricing On The Internal Performance Evaluation Of Commercial Banks

Funds transfer pricing is the basic management method for the modern commercial banks, which provides a reasonable valuation standard for the transfer of funds between different departments within the bank. It has many functions including risk management, product pricing, and resource allocation and performance evaluation. With the further development of financial system reform and interest rate marketization, the banking industry faces fierce competition. In order to cope with fierce competition, the commercial banks need to establish a scientific and efficient internal system to evaluate performance, maximize profits and improve the overall competitiveness of the bank. Therefore, Funds transfer pricing should be applied to internal performance evaluation for the commercial banks, helping banks to know their profits and evaluate internal performance correctly.The basic principles and main functions of Funds transfer pricing are analyzed in this paper. Then, the article studies the development of internal performance evaluation for banks, and put forward that indexes combining risks and benefits can be used to evaluate the internal performance. While measuring profits of departments, the economic value added and risk adjusted return on capital can reflect the risk.Therefore, by constructing a model, this paper introduces Funds transfer pricing into the bank internal performance evaluation, uses economic value added index to analyze profit contribution degrees of different departments, and carries on the test samples, which illustrates the important role funds transfer pricing plays in implementing internal performance evaluation system scientifically and reasonably.