Managerial rule

A managerial rule follows from the choice of the transfer price: The main objective in collecting deposits and making loans is to increase the net interest margin. Each margin is calculated vis-à-vis the matched-maturity marginal value of fund (MMMVF).

The logic of transfer pricing for deposits and loans can be visualized as shown in Figure 5.1.

Figure 5.1. Fund transfer pricing for deposits and loans

It is as if the deposits collected by the branches were transferred to e-Bank’s treasury, the branches receiving as income the MMMVF. It is as if the loans granted by the branches were funded with money lent by the treasury at ...

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