BPCE - 2018 Risk report / Pillar III

LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS Liquidity risk management policy

Liquidity risk management policy 9.2

Structuralliquidity risk is defined as the risk of the Group not having reasonable cost. This could occur, for example, in the event of a run sufficient funds to meet its commitments or to settle or offset a on the bank or ageneralcrisis of confidence on the markets. position due to market conditionswithin a specified period and at a

Objectives and policies The main aim of the Group’s liquidity risk managementsystem is to always be in a position to cope with a prolonged, highly intense liquidity crisis while keeping costs under control, promoting the balanced development of the business lines and complying with regulations inforce. To this end, the Group relies on threemechanisms: supervision of each business line’s liquidity consumption, ● predominantly by maintaining a balance between growth in the credit segment and customer deposit inflows;

centralizedfundingmanagementaimed primarilyat supervisingthe ● use of short-term funding, spreading out the maturity dates of medium- and long-term funds and diversifyingsources of liquidity; establishment of liquidity reserves. ● In addition to these measures, a consistent set of indicators, limits and management rules are combined in a centralized framework of standards and rules. These indicators and rules allow for the measurement and consolidatedmanagementof liquidity risk.

Operational management

OPERATIONAL LIQUIDITY RISK MANAGEMENT

system. These budgets are reviewed on an annual basis and govern the maximumliquidityconsumptionfor each entity in line with the Group’s budget process; the liquidity gap, which compares the amount of remaining ● liabilitieswith remainingassets over a ten-year period, enables the Group to manage medium- and long-term debt maturities and anticipate its funding requirements. It is governed by Group and individual entity limits; measurement of resource diversification, allowing the Group to ● avoid excessive dependence on a single creditor; the pricing policy, which ensures the performance of liquidity ● allocation. The definitionof these indicatorsand any associatedlimits is covered in a body of consolidatedstandardsthat is reviewedand validatedby the decision-makingbodies of the Group and its institutions. CENTRALIZED FUNDING MANAGEMENT The Group Finance division organizes, coordinatesand supervises the funding of Groupe BPCE on the markets. The short-term funding of Groupe BPCE is carried out by a single treasury and central bank collateral management team, created following the merger of the BPCE and Natixis cash management teams. This integrated treasury team is capable of managing the Group’s cash position more efficiently, particularly during a credit crunch. The Group has access to short-termmarket funding through its twomain issuers: BPCE and its subsidiary Natixis. For medium and long-term funding requirements (more than one year), in addition to deposits from Banque Populaire and Caisse d’Epargne network customers, which are the primary source of funding, the Group also issues bonds throughtwo mainoperators:

Liquidity risk is managedat the consolidatedGroup level and at each entity. Liquidity risk is assessed differently over the short,medium and long term: in the short term, it involves assessing an institution’s ability to ● withstanda crisis; in the medium term, liquidity is measured in terms of cash ● requirements; in the long term, it involves monitoring the institution’s maturity ● transformation level. Consequently, BPCE hasdefineda set of indicators and limits: one-dayand one-weekliquiditygap indicatorsmeasurethe Group’s ● very short-term funding requirements. These gaps are subject to Group and individualentity limits; stress scenarios measure the Group’s ability to meet its ● commitmentsand continue its regular commercialactivities during a crisis depending on short-term funding volumes, medium- and long-termdebt maturitiesand liquidityreserves.Internal stress test indicators are aimed at ensuring short-term liquidity security beyond the one-monthhorizonrequiredby regulations.These stress tests, based on bank- and/or market-specificscenarios, are broken down into various levels of stress in order to forecastthe impact on the Group’s liquidity position. Adaptationof liquidity stress rules to all business lines takes assumptions unique to each activity into account; the customer loan/deposit ratio is a relative measurement of the ● Group’s autonomy with respect to the financial markets; the Group’s market footprint measures its overall dependence to ● date on bond and money market funding. The contribution of the institutions to this coverage is managed by a liquidity budget

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Risk Report Pillar III 2018