BPCE - 2019 RISK REPORT Pillar III

MARKET RISKS

MARKET RISK MEASUREMENT METHODS

Market risk measurement methods 8.3

From a prudential standpoint, Groupe BPCE uses the standardized approach to measure market risk. The risk monitoring system relies on three types of indicators used to manage activity, on an overall basis and by similar activity, by focusing on directly observable criteria, including: sensitivity to variations in the underlying instrument, variations • in volatility or to correlation, nominal amounts, and diversification indicators. The limits corresponding to these qualitative and quantitative operational indicators thus complement the VaR limits and stress tests; daily assessment of global market risk measurement through • a 99% 1-day VaR; stress tests to measure potential losses on portfolios in • extreme market conditions. The Group system relies on comprehensive stress tests and specific stress tests for each activity. Special reports on each business line are sent daily to the relevant operational staff and managers. The Risk division also

provides a weekly report summarizing all of the Group’s market risk, with a detailed breakdown for Natixis, BRED Banque Populaire and Banque Palatine. Moreover, for Natixis, a global market risk report is submitted daily to the central institution, which prepares a weekly summary of market risks indicators and results for the Group’s Executive Management team. Finally, a global review of Groupe BPCE’s consolidated market risks (covering VaR measures and hypothetical/historic stress scenarios) is presented to the Group Market Risk Committee, in addition to risk reports prepared for the entities. In response to the Revised Pillar III Disclosure Requirements (Table MRB: Qualitative disclosures for banks using the Internal Models Approach), the main characteristics of the various models used for market risk are presented in the Natixis Registration Document.

Sensitivities

Each institution’s Risk division monitors and verifies compliance with sensitivity limits on a daily basis. If a limit is breached, an alert procedure is triggered in order to define the measures required to return within operational limits.

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VaR

Market risk is also monitored and assessed via synthetic VaR calculations, which determine potential losses generated by each business line at a given confidence level (99%) and over a given holding period (one day). For calculation purposes, changes in market inputs used to determine portfolio values are modeled using statistical data. All decisions relating to risk factors using the internal calculation tool are revised regularly by committees involving all of the relevant participants (Risk division, Front Office and Results department). Quantitative and objective tools are also used to measure the relevance of risk factors. VaR is based on numerical simulations, using a Monte Carlo method which takes into account possible non-linear portfolio returns based on the different risk factors. It is calculated and

monitored daily for all Group trading books, and a VaR limit is defined on a global level and per business line. The calculation tool generates 10,000 scenarios, which provides satisfactory precision levels. For certain complex products, which account for a minor share of the trading books, their inclusion in the VaR calculation is obtained by using sensitivities. VaR backtesting is carried out on approved scopes and confirms the overall robustness of the model used. Extreme risks, which are not included in VaR, are accounted for using stress tests throughout the Group. This internal VaR model used by Natixis was approved by the ACPR in January 2009. Natixis thus uses VaR to calculate capital requirements for market risks in approved scopes.

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RISK REPORT PILLAR III 2019 | GROUPE BPCE