In a transfer price system, margin stability in the customer business is crucial. This requires risk positions (interest, liquidity) to be manageable by ALM. Using “dirty” transfer price models for managing positions without contractually defined maturity affecting income, may result in substantial problems in hedging and fluctuations of the bank result.
The article gives an overview of the different options for dynamic management using moving average rates, with a special focus on handling volume increases and decreases. Additionally, the advantages/disadvantages of the different methods are described as well as their influence on the customer margin and interest gap contribution.