BPCE - 2019 RISK REPORT Pillar III

LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS

LIQUIDITY RISK MANAGEMENT POLICY

Liquidity risk management policy 9.2

Structural liquidity risk is defined as the risk of the Group not having sufficient funds to meet its commitments or to settle or

period and at a reasonable cost. This could occur, for example, in the event of a run on the bank or a general crisis of

offset a position due to market conditions within a specified confidence on the markets.

Objectives and policies

The main aim of the Group’s liquidity risk management system 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 in force. To this end, the Group relies on three mechanisms: supervision of each business line’s liquidity consumption, • predominantly by maintaining a balance between growth in the credit segment and customer deposit inflows;

centralized funding management aimed primarily at • supervising the use of short-term funding, spreading out the maturity dates of medium- and long-term funds and diversifying sources 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 consolidated management of liquidity risk.

Operational management

OPERATIONAL LIQUIDITY RISK MANAGEMENT Liquidity risk is managed at the consolidated Group 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 withstand a 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 has defined a set of indicators and limits: one-day and one-week liquidity gap indicators measure the • Group’s very short-term funding requirements. These gaps are subject to Group and individual entity limits; stress scenarios measure the Group’s ability to meet its • commitments and continue its regular commercial activities during a crisis depending on short-term funding volumes, medium- and long-term debt maturities and liquidity reserves. Internal stress test indicators are aimed at ensuring short-term liquidity security beyond the one-month horizon required by regulations. These stress tests, based on bank- and/or market-specific scenarios, are broken down into various levels of stress in order to forecast the impact on the Group’s liquidity position; 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 system. These budgets are reviewed on an annual basis and govern the maximum liquidity consumption for each entity in line with the Group’s budget process; the liquidity gap, which compares the amount of remaining • liabilities with remaining assets 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 definition of these indicators and any associated limits is covered in a body of consolidated standards that is reviewed and validated by the decision-making bodies of the Group and its institutions. CENTRALIZED FUNDING MANAGEMENT The Financial Management division organizes, coordinates and supervises the funding of Groupe BPCE on the markets. The short-term funding of Groupe BPCE is carried out by the Single Treasury and Central Bank Collateral Management team, created following the merger of 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-term market funding through its two main issuers: BPCE and its subsidiary Natixis.

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RISK REPORT PILLAR III 2019 | GROUPE BPCE