BPCE - 2018 Risk report / Pillar III

SECURITIZATION TRANSACTIONS Regulatory framework and accounting methods

Synthetic securitizations such as Credit Default Swaps are subject to accountingrecognitionrules specific to trading derivatives(Note 5.2 to the financial statements - “Financial assets and liabilities at fair value throughprofit or loss”). In accordance with IFRS 9, securitized assets are derecognized when Groupe BPCE has transferred substantiallyall of the risks and rewards of ownershipof the asset. If the Group transfers the cash flows of a financial asset but neither transfers nor retains substantially all the risks and rewards of ownershipof the financial asset, and has not retained control of the financial asset, the Group derecognizesthe financial asset and then recognizes separately, if necessary, as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains control of the financial asset, it continues to recognize the financial asset to the extent of its continuing involvement in the financial asset. When a financial asset at amortized cost or at fair value through other comprehensiveincome is fully derecognized,a gain or loss on disposal is recorded in the income statement.The amount is equal to Terminology Traditional securitization: this consists of the economic transfer to investorsof financialassets such as loans or receivables,transforming these loans into financial securities issued on the capital market via SSPEs (securitization special purposentities). Synthetic securitization: in a synthetictransaction,ownershipof the asset is not transferredbut the associatedrisk is transferredthrough a financialinstrument suchas a credit derivative. Resecuritization: a securitizationin which the credit risk associated with an underlyingpool of exposures is tranched and at least one of the underlying exposures is a securitization position. Tranche: a contractually established segment of the credit risk

the difference between the carrying amount of the asset and the value of the consideration received, corrected for impairment, and where applicable for any unrealized profit or loss previously recognized directly inother comprehensive income. Given the relatively low value of the assets in question and relative infrequency of securitization transactions, assets pending securitization continue to be recognized in their original portfolio. Specifically, they continue to be recognized under “Loans and receivablesdue from customersat amortizedcost” when that is their original classification. For synthetic securitizations,assets are not derecognizedas long as the institution retains control over them. The assets continue to be recognized in accordance with their original classification and valuation method. Consolidation or non-consolidation of securitizationvehicles is analyzed in accordancewith IFRS 10 based on the institution’s ties with the vehicle. These principles are reiterated in Note 3.2.1 to the financial statements - “Entities controlled by theGroup”. Originator: either an entity which, itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposure being securitized on its own or through affiliates, was directly or indirectly involved in the original agreement which created the obligations of the debtor or potentialdebtor and which gave rise to the securitizationtransaction or arrangement; or an entity that purchases a third party’s on-balance sheet exposures and thensecuritizes them. Sponsor: an institution other than an originator institution that establishesand manages an asset-backedcommercialpaper program or other securitization scheme that purchases exposures from third-party entities. Investor: the Group’s position when it holds securitizationpositions in which it has invested, but in which it does not act as originatoror sponsor. These are mainly tranches acquired in programs initiated or managed by external banks.

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associated with an exposure or numberof exposures. Securitization position: an exposureto a securitization.

Liquidity facility: the securitization position arising from a contractual agreement to provide funding to ensure timeliness of cash flows to investors.

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Risk Report Pillar III 2018