BPCE - 2018 Risk report / Pillar III

MARKET RISKS Market risk management

Market risk management 8.2

Organization The Risk, Complianceand Permanent Control division (DRCCP) works in the areas of risk measurement,definition and oversight of limits, and supervision of market risks. It is tasked with the following duties: Risk measurement: establishing the principles of market risk measurement,which are ● then validated by the various appropriate Risk Management Committees; implementingthe tools needed to measure risk on a consolidated ● basis; producing risk measurements, including those corresponding to ● operationalmarket limits, or seeing that they are produced as part of the risk managementprocess; determining value adjustment policies or delegating them to the ● Risk Management divisions of the relevant institutions and centralizingthe information; performing Level 2 validation of operating results and cash ● valuation methods. Definition and oversight of limits: examiningthe limit frameworkand setting limits (global caps and, ● where necessary, operational limits) adopted by the various appropriate Risk Management Committees, as part of the comprehensive risk management process; examining the list of authorized products for the relevant ● institutionsand the conditionsto be observed,and submittingthem for approvalto theappropriateMarketRisk Committee; examiningrequestsfor investmentsin financialproducts,or in new ● capital market products or activities, by the relevant banking institutions via the New Market Product Committee; harmonizing processes used to manage trading book allocations ● and medium- to long-termportfolios of the Banque Populaire and Caisse d’Epargnenetworks(indicators,definitionof indicatorlimits, oversight and control process, and reportingstandards); Market risk supervision: consolidatingthe mapping of Group market risks and contributing ● to the macro-level mapping of Group and institution risks; performing or overseeing daily supervision of positions and risks ● with respect to allocated limits (overall and operationallimits) and established resilience thresholds, organizing the decision-making Risk monitoring The Risk, Compliance and Permanent Control division (DRCCP) is responsible for the permanent control of market activities across Groupe BPCE, which is subject to regular review by the Group Market Risk Committee.

framework for limit breaches and performing or overseeing permanent supervision of limit breaches and their resolution; preparing the consolidated dashboard for the various ● decision-makingbodies. In addition, the DRCCP coordinates the market risk management process through national market risk days, or through theme-based workinggroups. ACTIVITIES IN 2018 In the changing regulatory environmentof 2018, the DRCCP carried out several major organizational projects for the Group: two regulatory stress tests (EBA) and internal stress tests (ICAAP ● and SRB) were conducted; Group governancewas establishedfor the calculationof fair value ● levels, with the creation of a Group Fair Value Committee and the deployment of a process for standardizing and improving the accuracy of fair value levels throughoutthe Group; an investment policy was drafted on institution banking books, ● aimed at defining the scope of operation and establishing investment rules for entities capable of reinvesting their surplus capital; oversight of non-operational property investments was initiated, ● and the private equity/real estate oversight system was improved by defining a stress test for the two asset classes. The supervisory limits applied to both activities will include this stress test measurement goingforward; an IT and function-oriented project on “financial risks” was ● launched, aimed at revising the architecture of market risk monitoring systems with the ultimate goal of pooling IT resources with Natixis. Otherobjectivesinclude: expandingthe scope of productionfor market risk indicators,and - economic indicators for counterparty and CVA risk, reducing production times for banking book market risk - indicators, rolling out an application to provide an overview of financial - product exposures forall Group institutions, including Natixis; the new Level 1 and 2 collateral controls were reviewed and rolled ● out both locallyand centrally. Within the scope of the trading book, market risk is monitored daily by measuring Group Value at Risk (VaR) and performing global and historicstress tests. GroupeBPCE uses the proprietaryVaR calculation system developed by Natixis. This system provides a tool for the measurement, monitoring and control of market risk at the consolidatedlevel and for each company in the Caisse d’Epargneand BanquePopulairenetworksand the BPCE subsidiaries,on a daily basis and taking account of correlations between the various portfolios. There are certain distinctivecharacteristicsof Groupe BPCE that must be considered, inparticular:

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Risk Report Pillar III 2018