BANCWARE FTP. Risk Adjusted Funds Transfer Pricing

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1 BANCWARE FTP Risk Adjusted Funds Transfer Pricing

2 BANCWARE FUNDS TRANSFER PRICING BETTER ANALYSIS DELIVERS BETTER RESULTS. FOR COMPETI- TIVE ORGANIZATIONS, FUNDS TRANSFER PRICING IS ESSENTIAL TO EFFECTIVE MANAGEMENT ACCOUNTING. Effective FTP must be transparent, rational and theoretically sound. It must consistently measure net interest income contribution from an asset or liability over its entire life. It must have the flexibility to be applied at the customer account level, to facilitate evaluation of products, customers, business units and other views of the enterprise. And finally, FTP must be integrated within the performance reporting, planning and interest rate risk management of the organization. BancWare Funds Transfer Pricing provides financial institutions with the most effective decision-making platform for customer, organizational and product profitability, product pricing and balance sheet and resource allocations. By transferring funding risks to those who manage them, business managers can focus directly on what they control pricing and profitability. BANCWARE FTP PROVIDES: 100% confidence in source data with full audit trails Unlimited, fully flexible transfer pricing methodologies Total user control for a hands-on process Crucial profitability information essential to making product pricing, balance sheet allocation, and compensation decisions Pro-forma FTP for budgeting & planning Historical transfer prices and spreads as a resource for performance reporting, planning, budgeting, and control functions throughout the institution Extensive, comprehensive reporting capabilities including Web delivery Stochastic analysis providing Option Adjusted FTP Spreads INTEGRATION THROUGHOUT ALL BANCWARE SOLUTIONS We recognize that FTP plays a pivotal role in pricing, business planning and risk management. That s why funds transfer pricing is embedded and integrated throughout the BancWare solution suite. BancWare Profitability provides the ultimate multidimensional OLAP platform for presenting and analyzing performance, including funds transfer pricing results and the funding center mismatch. Pro-forma FTP is also integrated with the BancWare Relationship Manager, so you can view the current profitability of a customer relationship, and effectively model and price new business. With full-life key performance indicators, rather than historical or snapshot views, you re able to make more informed and better business decisions. BancWare Data Integration FTP calculates and assigns FTP for all existing business at the transaction level. BancWare ALM and BancWare Budgeting & Planning with pro-forma FTP calculates FTP for all new business forecasts and blends the FTP rates for new business with existing business. BancWare ALM OAV@R determines Option Adjusted FTP Spreads by modeling an instrument s unique behaviors for multiple rate paths. BancWare FTP extracts as much of the available financial information from accounting subsystems as is relevant to the funds transfer pricing process. Any data deficiencies are addressed directly by finance personnel as data is collected, and enhanced using finance-specific algorithms to supplement missing origination or repricing dates, original balances, payment amounts, or other material inputs.

3 HUNDREDS OF METHODOLOGIES AVAILABLE BancWare FTP s sophisticated feature functionality provides you with the flexibility to Select from any number of FTP rate tables for yield curves and indexes Assign different FTP curves for assets and liabilities Support multiple currencies Calculate the FTP rate based on: - Assignment of an index - An explicit yield curve point - Cash flows until repricing or maturity - Time-weighted cash flows until repricing or maturity - Computed duration - A rate given in the application subsystem Calculate FTP based on original contract assumptions or on current state assumptions Assign prepayment behaviors to the transaction level and/or calculate a break-funding charge or credit when an instrument is deemed to have prepaid Create alternative transaction behaviors by overriding the recorded characteristics of an instrument. This facilitates modeling cash flows for non-contractual maturity loans or deposits. Determine multiple FTP rates for each transaction, to: - Model tranches of behaviors for blending to an FTP rate - Break out the funding risk components (such as rate risk, term/liquidity risk, options risk, basis risk) - Measure and present to management the impact of FTP methodology changes that are being proposed Assign Option-Adjusted FTP Spreads calculated in BancWare ALM OAV@R BANCWARE ALM AND BANCWARE BUDGETING & PLANNING WITH PRO-FORMA FTP BancWare solutions comprehensively model future financial statements, allowing you to evaluate and change assumptions for future interest rates, prepayment rates, new volumes, spreads, and many other drivers of risk and performance. Data for existing business is created and processed using BancWare Data Integration and is seamlessly fed into the model as the starting point for this analysis including FTP rates associated with each planning account. Pro-forma FTP allows users to transfer price new business throughout the forecast horizon, and blend this with the FTP rates associated with existing business. Thus, business planners can more effectively forecast their controllable contribution to profitability new volumes and spreads. Budgets and forecasts of interest income and expense, and the subsequent analysis of variances, become powerful tools, because the components of spread actually earned on individual positions can be compared to the forecast spreads. BancWare users have successfully employed this type of analysis to focus managers' attention on increasing profit margins and total profits, rather than simply on growing volume. Assets Liabilities and Capital Jul-05 Aug-05 Sep-05 Jul-05 Aug-05 Sep-05 Base Funding Rate -2.22% -2.21% -2.2-% 2.19% 2.20% 2.23% Term (Liq) Funding Addon Spread -0.19% -0.19% -0.20% 0.17% 0.16% 0.17% Options Funding Addon Spread -0.04% -0.04% -0.06% 0.00% 0.00% 0.00% Prepay Penalty Addon Spread 0.00% 0.00% -0.02% 0.00% 0.00% -0.01% PrePay Penalty Addon Spread Options Funding Addon Spread Term (Liq) Funding Addon Spread Funding Center Mismatch Summary 3.00% 2.00% 1.00% 0.00% -1.00% Base Funding Rate -2.00% -3.00% Assets Liab and Capital Jul-05 Aug-05 Sep-05 Jul-05 Aug-05 Sep-05 Assets Liabilities and Capital Extensive analytic capabilities enable easy creation of polished reports, and ability to drill into the details.

4 Why Choose BancWare Funds Transfer Pricing? BancWare FTP offers unmatched funds transfer pricing functionality for financial institutions. With BancWare FTP, banks can transfer price all financial instruments particularly important when transfer pricing instruments with complex attributes, behaviors and cash flows. By applying transfer prices at the customer account level, BancWare FTP facilitates the evaluation of products, customers, business units and other views of the financial institution. Fully integrated with other BancWare solutions, BancWare FTP allows for more efficient use of data, and faster, more complete analytic cycles that drive better decisionmaking. FLEXIBILITY Transfer priced data is available from BancWare FTP at any level of detail necessary to support analysis and reporting in a variety of formats. Data can be fed to other systems through an ODBC link, and a flexible report writer enables numerous reporting options. PERFORMANCE Working efficiently is the key to working smart. With some vendors, calculating FTP is inflexibly tied to market value and income simulation. With BancWare, funds transfer pricing calculations can be unbundled and run separately for faster results. Or, you can choose to calculate option adjusted FTP, depending on your unique needs. Calculations can be performed on millions of transactions quickly and accurately, giving you the flexibility to do more complex analysis (calculate multiple rates, use multiple curves, etc), while saving valuable time. FULL CONTROL BancWare FTP enables complete control over the calculation and assignment of funds transfer prices. This control includes the ability to specify complex conditional logic for selecting how and which rates will be applied to each customer account or user-defined aggregation (pool). COMPREHENSIVE INSTRUMENT COVERAGE BancWare FTP lets you accurately transfer price all of your financial instruments even the most complex, including loans with prepayment assumptions and/or peculiar cashflows, tranches of non-maturity liabilities, complex leases, preferred stock borrowings, asset securitizations and other unique sources and uses of funds. EMPOWERING THE FINANCIAL ANALYST Allowing financial data conversion to be managed by the financial analyst dramatically reduces the burden on overextended information technology resources for custom extracts and special programming, and keeps the process where the relevant expertise resides within the finance department.

5 Proven Record of Customer Support Excellence Delivered and supported by a team of experts, BancWare provides consistent, predictable implementations on time and on budget. Moreover, our highly trained consulting and support team is always available to provide training, customization, and risk management consulting. INTEGRATED RISK AND PERFORMANCE SOLUTIONS A leader in risk management, BancWare offers scalable technology and proven solutions that help financial firms effectively analyze risk, forecast balance sheet performance, meet regulatory requirements and make critical business decisions. Our asset/liability management, profitability, strategic planning, credit risk, economic capital and Basel II compliance solutions provide a complete picture of your business. A unified view of risk and performance measurements across all activities and markets drives greater understanding of your complete financial picture and allows decisions to be driven by common strategy and assumptions. BancWare can integrate critical financial management systems, giving you the power to share comprehensive analytics, decision support and performance measurement at all levels of your business. With over 20 years of banking technology experience and more than 400 clients in 35 countries, BancWare solutions deliver high-caliber, actionable intelligence to meet the specific needs of financial institutions both large and small. BancWare is a business unit of SunGard, a global leader in integrated software and processing solutions, primarily for financial services. SunGard serves more than 25,000 customers in more than 50 countries, including the world s 50 largest financial services companies.

6 3 Post Office Square Boston, MA Tel: St Mary Axe London EC3A 8AA Tel: +44 (0) bancware.marketing@risk.sungard.com 8 Temasek Boulevard #39-02/03 Suntec Tower Three Singapore Tel: SunGard. SunGard, the SunGard logo, and BancWare are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.