In the branch banking system, branches with surplus funds cannot be profitable without an internal fund transfer pricing (FTP) system. Therefore, a dynamic FTP model is critical to enhance a bank’s sustainability. This article has designed a market-oriented multiple FTP model by factoring in liquidity risk, market interest rate, credit demand, and portfolio diversification. The FTP rates are estimated using the 151 branch-level daily data of a bank in India. We reduced the endogeneity issue related to variable selection with the 2SLS system equation. The findings suggest that dual-functioning branches are profitable if they reduce their fund borrowings from the corporate head office (HO). Corporate treasury provides liquidity support to banks, but their profit gets impacted by the increase in the policy and HO-transfer rate. The study showed that corporate spread is significantly affected by increased liquidity cost and market borrowing rate. It is also empirically established that internal FTP pricing may hamper branches’ earnings when branch managers mobilize funds beyond the cost of lending as per FTP rates. The dynamic FTP model is linked to the yield curve, making it market oriented and enabling managers to price products effectively.
AganaJ. A., MohammedA. K., & ZamoreS. (2018). International transfer pricing and income shifting in developing countries: Evidence from Ghana. International Journal of Emerging Markets, 13(5), 1132–1153.
2.
AliM., KhattakM. A., & AlamN. (2023). Credit risk in dual banking systems: Does competition matter? Empirical evidence. International Journal of Emerging Markets, 18(4), 822–844.
BanerjeeA. K., & PradhanH. K. (2020). Responses of economic news on asset prices: A study of Indian stock index futures. Applied Finance Letters, 9(Suppl 1), 3–14.
5.
BanerjeeA. K., & PradhanH. K. (2022). Intraday analysis of macroeconomic news surprises, and asymmetries in Indian benchmark bond. Finance Research Letters, 45, 102135.
6.
BanerjeeA. K., RahmanM. R., MisraA. K., & SensoyA. (2025). Risk sharing framework and systemic tolerance in Indian banks: Double layer network approach. Research in International Business and Finance, 73, 102636.
7.
ButtonR., PezziniS., & RossiterN. (2010). Understanding the price of new lending to households. Bank of England Quarterly Bulletin, 2010(Q3), 312–321.
8.
CadamagnaniF., HarimohanR., & TangriK. (2015). A bank within a bank: How a commercial bank’s treasury function affects the interest rates set for loans and deposits. Bank of England Quarterly Bulletin, 2015(Q2), 157–166.
9.
CecchiniM., LeitchR., & StrobelC. (2013). Multinational transfer pricing: A transaction cost and resource based view. Journal of Accounting Literature, 31(1), 31–48.
10.
ChanK. H., LoA. W., & MoP. L. L. (2006). Managerial autonomy and tax compliance: An empirical study on international transfer pricing. Journal of the American Taxation Association, 28(2), 1–22.
11.
ChenC. X., ChenS., PanF., & WangY. (2014). Determinants and consequences of transfer pricing autonomy: An empirical investigation. Journal of Management Accounting Research, 27(2), 225–259.
12.
CoolsM., EmmanuelC., & JorissenA. (2008). Management control in the transfer pricing tax compliant multinational enterprise. Accounting, Organizations and Society, 33(6), 603–628.
13.
Deloitte. (2014). Funds transfer pricing: A survey to assess the state of European banks’ practices.
14.
DermineJ. (2009). Bank valuation & value-based management. McGraw-Hill.
15.
DermineJ. (2011). Fund transfer pricing for deposits and loans. Foundation and Advanced, 6, 1–21.
16.
DermineJ. (2012). Pricing policies of financial intermediaries (Vol. 5). Springer Science & Business Media.
17.
ElliotV. (2018). Funds transfer pricing in Swedish savings banks: An exploratory survey. Scandinavian Journal of Management, 34(3), 289–302.
18.
ElliotV., & LindblomT. (2015). Funds transfer pricing in banks: Implications of Basel III. In LarssonT. T. & LindblomT. (Eds.), Essays on performance management systems, regulation and change in Swedish banks. BAS Publisher.
19.
ElliotV., & LindblomT. (2017). Funds transfer pricing, liquidity premium and market structure (Working Paper No. 2996419). SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2996419
20.
GhoshD. (2000). Organizational design and manipulative behaviour: Evidence from a negotiated transfer pricing experiment. Behavioral Research in Accounting, 12(1), 1–30.
21.
GrantJ. (2011). Liquidity transfer pricing: A guide to better practice. Financial Stability Institute and Bank for International Settlements.
22.
HanselmanO. B. (2009). Best practices and strategic value of funds transfer pricing. Journal of Performance Management, 22(2), 3–16.
23.
HoD. H. K. (2008). Multinational transfer pricing: Evidence in the United Kingdom. International Taxation Journal, 34, 43.
24.
KawanoR. T. (2005). Transfer pricing mechanism. The Journal of Bank Cost & Management Accounting, 18, 35–43.
25.
KleinM. A. (1971). A theory of the banking firm. Journal of Money, Credit and Banking, 3(2), 205–218.
26.
LeveyK. (2008). Beyond funds transfer pricing to actionable decision-making. Journal of Performance Management, 21(1), 10–21.
27.
OyelereP. B., & TurnerJ. D. (2000). A survey of transfer pricing practices in UK banks and building societies. European Business Review, 12, 187–199.
28.
SahaA., Hock-EamL., & YeokS. G. (2018). Deciphering drivers of efficiency of bank branches. International Journal of Emerging Markets, 13(2), 391–409.
29.
SariD., UtamaS., & RahayuN. (2021). Transfer pricing practices and specific anti-avoidance rules in Asian developing countries. International Journal of Emerging Markets, 16(3), 492–516.
30.
TangR. Y. (2002). Current trends and corporate cases in transfer pricing. Quorum Books.
31.
Van DeventerD. R., ImaiK., & MeslerM. (2013). Advanced financial risk management: Tools and techniques for integrated credit risk and interest rate risk management. John Wiley & Sons.
32.
VaysmanI. (1996). A model of cost-based transfer pricing. Review of Accounting Studies, 1(1), 73–108.
33.
VaysmanI. (1998). A model of negotiated transfer pricing. Journal of Accounting and Economics, 25(3), 349–384.
34.
ViktorE. (2015). Essays on performance management systems, regulation and change in Swedish banks. BAS Publisher.
35.
WeinerJ. (1997). Choosing a funds-transfer-pricing method: Practical considerations. Bank Accounting & Finance, 10, 33–45.
36.
WolffM. (2007). Market price-based transfer price systems: Empirical evidence for effectiveness and preconditions. Problems and Perspectives in Management, 5(2), 66–74.
37.
WunderH. F. (2009). Tax risk management and the multinational enterprise. Journal of International Accounting, Auditing and Taxation, 18(1), 14–28.
38.
ZimmermanJ. L. (2011). Accounting for decision making and control (7th ed.). McGraw-Hill.
