BPCE - 2018 Registration document

ADDITIONAL INFORMATION Glossary

Key technical terms “Bank acting as investor” “Bank acting as originator” “Bank acting as sponsor”

See securitization See securitization See securitization

A supervisory framework aimed at better anticipating and limiting the risks borne by credit institutions. It focuses on banks’ credit risk, market risk and operational risk. The terms drafted by the Basel Committee were adopted in Europe through a European directive and have been applicable in France since January 1, 2008 Changes in the supervisory framework for banks, incorporating the lessons drawn from the 2007-2008 financial crisis, meant to complement the Basel II accords by enhancing the quality and quantity of the minimum capital requirements applicable to financial institutions. Basel III also establishes minimum requirements for liquidity risk management (quantitative ratios), defines measures aimed at limiting procyclicality in the financial system (capital buffers that vary according to the economic cycle) and reinforces requirements for financial institutions deemed to be systemically important A portion of a loan issued in the form of an exchangeable security. For a given issue, a bond grants the same debt claims on the issuer for the same nominal value, the issuer being a company, a public sector entity or a government A transferable asset or guarantee pledged to secure reimbursement on a loan in the event the borrower fails to meet its payment obligations Ratio of Common Equity Tier 1 (CET1) capital to risk-weighted assets. The CET1 ratio is a solvency indicator used in the Basel III prudential accords A ratio indicating the portion of net banking income used to cover operating expenses (the company’s operating costs). It is calculated by dividing operating costs by net banking income (see Acronyms) Directive 2013/36/EU (CRD IV) and Regulation (EU) No. 575/2013 (CRR), which transpose Basel II in Europe. In conjunction with the EBA’s (European Banking Authority) technical standards, they define European regulations for the capital, major risk, leverage and liquidity ratios The risk of loss from the inability of clients, issuers or other counterparties to honor their financial commitments. Credit risk includes counterparty risk related to market transactions and securitization A financial product whose underlying asset is a credit obligation or debt security (bond). The purpose of the credit derivative is to transfer credit risk without transferring the asset itself for hedging purposes. One of the most common forms of credit derivatives is the credit default swap (CDS) A financial security or financial contract whose value changes based on the value of an underlying asset, which may be either financial (equities, bonds, currencies, etc.) or non-financial (commodities, agricultural products, etc.) in nature. This change may coincide with a multiplier effect (leverage effect). Derivatives can take the form of either securities (warrants, certificates, structured EMTNs, etc.) or contracts (forwards, options, swaps, etc.). Exchange-traded derivatives contracts are called futures The price that would be received to sell an asset or paid to transfer a liability in a standard arm’s length transaction between market participants at the measurement date. Fair value is therefore based on the exit price The percentage by which a security’s market value is reduced to reflect its value in a stressed environment (counterparty risk or market stress) Tier 1 capital divided by exposures, which consist of assets and off-balance sheet items, after restatements of derivatives, funding transactions and items deducted from capital. Its main goal is to serve as a supplementary risk measurement for capital requirements In a banking context, liquidity refers to a bank’s ability to cover its short-term commitments. Liquidity also refers to the degree to which an asset can be quickly bought or sold on a market without a substantial reduction in value The risk that a bank will be unable to honor its payment commitments as they fall due and replace funds when they are withdrawn The risk of loss of value on financial instruments resulting from changes in market inputs, from the volatility of these inputs or from the correlations between these inputs Pillar I sets minimum requirements for capital. It aims to ensure that banking institutions hold sufficient capital to provide a minimum level of coverage for their credit risk, market risk and operational risk. The bank can use standardized or advanced methods to calculate its capital requirement Pillar II establishes a process of prudential supervision that complements and strengthens Pillar I. It consists of: an analysis by the bank of all of its risks, including those already covered by Pillar I; - an estimate by the bank of the capital requirement for these risks; - a comparison by the banking supervisor of its own analysis of the bank’s risk profile with the analysis conducted by the bank, in order to adapt its choice of prudential measures where applicable, which may take the form of capital requirements exceeding the minimum requirements or any other appropriate technique Pillar III is concerned with establishing market discipline through a series of reporting requirements. These requirements – both qualitative and quantitative – are intended to improve financial transparency in the assessment of risk exposure, risk assessment procedures and capital adequacy Total gross value less allowances/impairments Exposure before the impact of provisions, adjustments and risk mitigation techniques

Basel II (the Basel Accords)

Basel III (the Basel Accords)

Bond

Collateral

Common Equity Tier 1 ratio

Cost/income ratio

CRD IV/CRR

Credit and counterparty risk

Credit derivative

Derivative

Fair value

Gross exposure

Haircut

Leverage ratio

Liquidity

Liquidity risk

Market risks

Net value

Pillar I

Pillar II

Pillar III

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Registration document 2018