BPCE - 2018 Registration document

RISK REPORT Capital management and capital adequacy

MREL – TLAC The regulatory framework for bank resolution and bail-in was stabilized in 2015. New complementary indicators for capital adequacy and leverage ratios will be implemented via the Minimum Requirement for own funds and Eligible Liabilities (MREL) and Total Loss Absorbing Capacity (TLAC). Groupe BPCE has already established internal oversight of these indicators. The MREL (Minimum Requirement for own funds and Eligible Liabilities) ratio was introduced by BRRD. Senior unsecured debt with a maturity of more than one year and the Group’s own funds make up the numerator of the MREL ratio. In November 2015, the Single Resolution Board published a provisional methodology for setting the MREL requirement under the current regulatory framework. This methodology sets the MREL requirement based on risk-weighted assets equal to double the sum of total capital requirements, including buffers, minus 125 basis points. The Single Resolution Board set Groupe BPCE’s MREL requirement in 2018. The Group currently meets this requirement, and in fact exceeds it; accordingly, it is not required to modify or increase its issuance plan. Draft changes to the MREL regulatory framework and introduction of the TLAC ratio in Europe The regulatory text is currently being finalized and should be published in 2019. It will introduce the transposition of the TLAC principles, which the Group expects to meet without being required to modify its issuance plan, as it has already adequately prepared to satisfy its requirements.

The corresponding total capital requirement will be 13.25% (excluding Pillar II guidance). In addition to these buffers, over the course of 2019, the counter-cyclical buffer will be determined according to the distribution of Group risks by country and regulations in force in each country. With a Common Equity Tier 1 ratio of 15.8% at end-2018 (with phase-in measures), Groupe BPCE has exceeded the specific capital requirements set by the ECB. As regards the internal capital adequacy assessment under Pillar II, the principles defined in the ICAAP/ILAAP guidelines published by the ECB in February 2018 were applied as of this year in Groupe BPCE’s ICAAP. The assessment is thus carried out using two different approaches: a “normative” approach aimed at measuring the impact of internal ● stress tests within three years of the initial Pillar I regulatory position; an “economic” approach aimed at identifying, quantifying and ● hedging risks using internal capital over the short term (one year) and using internal methodologies. The methodologies developed by Groupe BPCE provide a better assessment of risks that are already covered under Pillar I, and also an additional assessment of risks that are not covered by Pillar I. The results obtained using these two approaches confirmed the Group’s financial soundness and no capital buffer is necessary in addition to the existing regulatory buffers. OUTLOOK As at December 31, 2018, Groupe BPCE had already achieved the targets set for the Common Equity Tier 1 ratio (> 15.5%) and TLAC ratio (> 21.5%) in the 2018-2020 strategic plan. Even so, the Group as a whole will remain focused on continuously improving its financial strength in 2019. The Group was added back to the list of G-SIBs (Global Systemically Important Banks) in November 2018, with effect in 2020.

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Registration document 2018