Interest and liquidity risk management of the banking book by ALM are especially challenging for non-bullet loans or deposits. Using the simple average of reference rates results in undesired customer margin volatilities, due to constant capital repayment until maturity. This drawback may be avoided by using term weighted tranches/reference rates. The article gives an overview of the two approaches of transfer price calculation including the corresponding advantages and disadvantages. Finally, the impact on the customer business and ALM result is presented.
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