BPCE - 2020 Universal Registration Document

RISK FACTORS & RISK MANAGEMENT

MARKET RISKS

Risk monitoring

Information provided in the respect of IFRS 7. The Risk division is responsible for monitoring the risks associated with all Groupe BPCE capital market activities, subject to regular review by the Group Market Risk Committee. Within the scope of the trading book, market risk is monitored daily by measuring Group Value at Risk (VaR) and performing global and historical stress tests. The proprietary VaR calculation system developed by Natixis is used by the Group. This system provides a tool for the measurement, monitoring and control of market risk at the consolidated level and for each institution, on a daily basis and taking account of correlations between the various portfolios. There are certain distinctive characteristics of Groupe BPCE that must be considered, in particular: for Natixis: given the size of its capital markets business, • Natixis’ risk management system is specifically tailored to this entity; for the Banque Populaire network: only BRED Banque • Populaire has a capital markets business. It monitors the financial transactions carried out by the Banque Populaire network trading floor and Finance division daily, using 99% 1-day Value at Risk, sensitivity, volume and stress scenario indicators; for Banque Palatine: daily monitoring of trading book activities • is based on the Risk division’s supervision of 99% 1-day Value at Risk, stress tests and compliance with regulatory limits. Information provided in the respect of IFRS 7. 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. In addition, for Natixis, global market risk reports are sent to the central institution on a daily basis. The latter produces a weekly summary of market risk indicators and results for the Group’s executive management. Finally, a global review of Groupe BPCE’s consolidated market risks (covering VaR measures and hypothetical/historic stress Market risk measurement methods 6.8.3

All limits (operational indicators, VaR, and stress tests) are monitored daily by each institution’s Risk division. Any limit breachesmust be reported and, where applicable, are subject to a Management decision concerning the position in question (close, hedge, hold, etc.). These supervisory mechanisms also have operational limits and resilience thresholds that determine the Group’s risk appetite for trading operations. Banking book risk is supervised and monitored by activity: liquidity reserves, illiquid assets (private equity, non-operational real estate), securitizations and liquid assets excluding liquidity reserves. Liquidity reserves and liquid assets excluding liquidity reserves are monitored monthly, mainly via stress test indicators. Illiquid assets and securitizations are monitored quarterly. The Group’s single treasury and central bank collateral management pool is subject to daily monitoring of risks and economic results for all of its activities, which are mainly related to the banking book.

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. 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.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE