BPCE_PILLAR_III_2017

COUNTERPARTY RISK Counterparty risk management

CVA The valuation of financial instruments traded over-the-counter by Groupe BPCE with external counterparties in its capital markets businesses (mainly Natixis) and ALM management activities include credit valuation adjustments. The CVA is an adjustment to the valuation of the trading book aimed at factoring in counterparty credit risks. It thus reflects the expectationof loss in fair value terms on the existing exposure to a counterparty due to the potential positive value of the contract, the counterparty’s probability of default and the estimated recovery rate. The level of the CVA varies according to changes in exposure to existing counterparty risk and in the counterparty’s credit rating, which may trigger changes in the CDS spread used to determine probabilityof default.

Specific wrong-way risk is subject to a specific capital requirement (Article 291.5 of the European regulation of June 26, 2013 on prudential requirementsfor credit institutionsand investmentfirms), while general wrong-way risk is assessed using the WWR stress scenarios defined foreach asset class. In the event the Bank’s external credit rating is downgraded,it may be required to provide additional collateral to investors under agreements that include rating triggers. In particular, in calculating the liquidity coverage ratio (LCR), the amounts of these additional cash outflowsand additionalsurety requirementsare measured.These amounts comprise the payment the bank would have to make within 30 calendardays in the event its credit ratingwere downgradedby as much as threenotches.

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Risk Report Pillar III 2017