BPCE - 2020 Universal Registration Document

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RISK FACTORS & RISK MANAGEMENT

MARKET RISKS

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. STRESS TESTS Stress tests are calibrated according to severity and occurrence levels, which are consistent with portfolio management objectives: Trading book stress tests are calibrated over a 10-day period and a 10-year probability of occurrence. They are based on: historical scenarios, which reproduce changes in market • conditions observed during past crises, their impacts on current positions and P&Ls. They can be used to assess the exposure of the Group’s activities to known scenarios. Twelve historical stresses are implemented on the trading book; hypothetical scenarios, which involve simulating changes in • market conditions in all activities based on plausible assumptions concerning the dissemination of an initial shock. These shocks are based on scenarios defined according to economic criteria (real estate crisis, economic crisis, etc.), geopolitical considerations(terrorist attacks in Europe, toppling of a regime in the Middle East, etc.) or other factors (bird flu, etc.). The Group has implemented seven hypothetical stress tests since 2010.

Banking book stress tests are calibrated over a longer period in line with the banking book’s management periods: a bond stress test calibrated using a mixed • hypothetical-historical approach that reproduces a stress on European sovereigns (similar to the 2011 crisis); a bond stress test calibrated using a mixed • hypothetical-historical approach that reproduces a stress on corporates (similar to the 2008 crisis); an equity stress test calibrated over the 2011 historical period, • applied to equity investments for the purpose of the liquidity reserve; a private equity and real estate stress test, calibrated over the • 2008 historical period, applied to the private equity and real estate portfolios. The various stress tests are subject to limits adapted by each institution, which are monitored through recurring controls and regular reports. INDEPENDENT PRICE VERIFICATION The Group has established an organizational structure tasked with independent price verification (IPV) through: creation of a Group valuation team in the Market Risk division; • Group governance covering the IPV system. • The Valuation Team is responsible for: meeting regulatory requirements and implementing said • requirementswhile assessing their impacts on the production and verification of new indicators; standardizing and harmonizing the production, certification and • communication of market inputs used in valuation processes; coordinating and overseeing valuation processes group-wide, • in order to guarantee the convergence of IPV methods and principles; harmonizing fair value level processes across the Group. • Group governance is based in particular on: a supervision system centered on the Group Valuation • Committee and the Group Fair Value Level Committee; a body of procedures, including the Group IPV procedure, • which explains the validation and escalation system.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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