| Summary: | Funds transfer pricing (FTP) is a management accounting technique used to identify the source of profits contributions for business units and products, and is a strategic tool to integrate risk management with decision-making. As very few studies have investigated the FTP model for commercial banks, this thesis attempts to identify the factors driving the bank FTP model and to develop the model. To develop the bank FTP model, the bank FTP process, which consists of the WHY, the WHAT, the WHO, the WHERE, the WHEN and the HOW factors, is designed. The WHY factor determines that the FTP model should be developed to enhance effective bank risk management process, and properly assign profit contributions within a bank to help achieve accurate bank performance evaluation. The WHERE factor demands that the FTP model should be developed at the bank business unit and instrument levels, and the WHEN factor requires that both the original and remaining term FTP models should be developed. The FTP model is developed with the responsibility accounting principles and financial risk management techniques, which are applied for the WHO, the WHAT and HOW factor design. The implications of the FTP model developed in this thesis are examined by applying the model in bank performance measurements. The FTP model is found to be able to properly assign bank risks to business unit managers who have control over the risks, and properly allocate profit contributions within a bank. The FTP model is also applied in the different types of banks, which have varying degrees of decentralization of risk management decision-making authority. It is found that the FTP model can achieves effective risk management and accurate business performance evaluation in the partially decentralized bank. The case study analysis of the FTP model in the Chinese bank shows that the bank FTP model developed in this thesis is more effective in risk management than the bank's FTP method.
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