BPCE - 2018 Risk report / Pillar III

APPENDICES Glossary

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

See securitization See securitization See securitization

A supervisory frameworkaimedat betteranticipatingand limitingthe risks borneby credit institutions. It focuseson banks’creditrisk,marketrisk and operational risk.The termsdraftedby the BaselCommittee wereadopted in Europethrougha Europeandirectiveandhavebeenapplicable in FrancesinceJanuary 1, 2008 Changesin the supervisoryframeworkfor banks, incorporating the lessonsdrawn from the 2007-2008 financialcrisis, meantto complementthe Basel IIaccordsby enhancingthe qualityand quantityof the minimum capital requirementsapplicable to financial institutions.Basel III also establishesminimum requirementsfor liquidity risk management(quantitativeratios), defines measures aimed at limiting procyclicalityin the financial system (capital buffers that vary accordingto the economiccycle) and reinforcesrequirements for financial institutions deemed to be systemically important A portionof a loan issuedin the formof an exchangeable security.For a given issue,a bondgrantsthe samedebt claimson the issuerfor the samenominalvalue,the issuerbeinga company,a publicsector entity ora government A transferableassetor guaranteepledgedto securereimbursement on a loan in the eventthe borrower fails tomeet its payment obligations Ratio of CommonEquity Tier 1 (CET1) capital to risk-weightedassets. The CET1 ratio is a solvency indicator used in the Basel IIIprudentialaccords A ratio indicatingthe portionof net bankingincomeused to cover operatingexpenses(the company’s operating costs). It iscalculatedby dividingoperating costs by net bankingincome (seeAcronyms)Directive2013/36/EU (CRDIV) andRegulation (EU)No. 575/2013 (CRR),whichtranspose Basel IIin Europe. In conjunctionwith the EBA’s(EuropeanBankingAuthority)technicalstandards,they define European regulations forthecapital,major risk, leverageandliquidityratios The risk of loss from the inability of clients, issuers or other counterpartiesto honor their financial commitments.Credit risk includes counterparty risk related tomarket transactions andsecuritization A financialproductwhoseunderlyingassetis a creditobligationor debtsecurity(bond).The purpose of the creditderivativeis to transfercreditrisk withouttransferringthe asset itself for hedgingpurposes.One of themost common forms of credit derivatives is thecredit default swap (CDS) A financialsecurityor financialcontractwhosevaluechangesbasedon the valueof an underlyingasset, whichmay be eitherfinancial(equities,bonds,currencies, etc.) or non-financial (commodities,agricultural products, etc.) in nature. Thischangemaycoincidewitha multipliereffect(leverageeffect).Derivativescan take the form of either securities(warrants,certificates,structuredEMTNs,etc.) or contracts(forwards, options,swaps, etc.). Exchange-traded derivativescontractsare called futures The price that wouldbe receivedto sell an assetor paid to transfera liabilityin a standardarm’s length transactionbetweenmarketparticipantsat themeasurement date.Fairvalueis thereforebasedon theexit price Exposure before the impact of provisions, adjustments and riskmitigationtechniques Thepercentageby whicha security’smarketvalueis reducedto reflectits valuein a stressedenvironment (counterparty risk or market stress) Tier 1capitaldividedby exposures,whichconsistof assetsandoff-balancesheetitems,afterrestatements of derivatives,funding transactionsand items deductedfrom capital. Its main goal is to serve as a supplementary risk measurement for capital requirements In a bankingcontext,liquidityrefersto a bank’sabilityto coverits short-termcommitments. Liquidityalso refersto the degreeto whichan assetcan be quicklyboughtor sold on a marketwithouta substantial reduction in value The risk that a bankwill be unableto honorits paymentcommitments as they fall due and replacefunds whenthey are withdrawn Therisk of lossof valueon financialinstruments resultingfromchangesin marketinputs,fromthe volatility of these inputs or from thecorrelations between theseinputs Pillar I sets minimumrequirements for capital. It aims to ensure that bankinginstitutionshold sufficient capitalto providea minimumlevel of coveragefor their creditrisk, marketrisk and operationalrisk. The bankcanuse standardized or advanced methods tocalculate its capital requirement Pillar IIestablishesa process of prudentialsupervision that complements andstrengthensPillar I. It consists of: an analysisby thebankof all of its risks, including those already covered by Pillar I; - an estimateby thebankof thecapital requirement for theserisks; - a comparisonby the bankingsupervisorof its own analysisof the bank’srisk profile with the analysis conductedby the bank,in orderto adaptits choiceof prudentialmeasureswhereapplicable,whichmay take the form of capital requirementsexceedingthe minimumrequirementsor any other appropriate technique Pillar IIIis concernedwith establishingmarketdisciplinethrougha seriesof reportingrequirements.These requirements– both qualitativeand quantitative– are intendedto improvefinancialtransparency in the assessment of risk exposure, isk assessment procedures and capital adequacy Total gross value lessallowances/impairments

Basel II (the Basel Accords)

Basel III (the Basel Accords)

Bond

Collateral

Common Equity Tier 1ratio

Cost/income ratio

CRD IV/CRR

Credit andcounterparty 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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Risk Report Pillar III 2018