BPCE_PILLAR_III_2017

LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS Liquidity risk management policy

Liquidity risk management policy 9.2

Structuralliquidity risk is defined as the risk of the Group not having reasonablecost. This could occur, for example,in the event of massive sufficient funds to meet its commitments or to settle or offset a withdrawalsof customerdepositsor an overall crisis of confidenceon position due to market conditionswithin a specified period and at a the markets.

Objectives and policies The main aim of the Group’s liquidity risk managementsystem 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 inforce. To this end, the Group relies on threemechanisms: supervision of each business line’s liquidity consumption, ● predominantly by maintaining a balance between growth in the credit segment and customer deposit inflows;

centralizedfundingmanagementaimed primarilyat supervisingthe ● use of short-term funding, spreading out the maturity dates of medium- and long-term funds and diversifyingsources of liquidity; the 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 consolidatedmanagementof liquidity risk.

Operational management

OPERATIONAL LIQUIDITY RISK MANAGEMENT

the Group’s market footprint measures its overall dependence to ● date on funds from bond and money markets. The contributionof the institutions to this coverage is managed by a liquidity budget system. These budgets are reviewed on an annual basis and govern the maximumliquidityconsumptionfor each entity in line with the Group’s budget process; the liquidity gap, which compares the amount of remaining ● liabilitieswith remainingassets 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 limits at the Group leveland within each institution; 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 are included 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 Group Finance division organizes, coordinatesand supervises the funding of Groupe BPCE in the markets. The short-term funding of Groupe BPCE is carried out by a single treasury and central bank collateral management team, created following the merger of BPCE and Natixis’ cash managementteams. This integrated treasury team is capable of managing the Group’s cash positionmore efficiently,particularlyduring a credit crunch. The Group has access to short-termmarket funding through its two main issuers: BPCE and its subsidiary Natixis.

Liquidity risk is managedat the consolidatedGroup 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 ● withstanda 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 hasdefineda set of indicators and limits: one-dayand one-weekliquiditygap indicatorsmeasurethe Group’s ● very short-term funding requirements. These gaps are subject to limits at both the Group level and withineach institution; stress scenarios measure the Group’s ability to meet its ● commitmentsand continue its regular commercialactivities during a crisis depending on short-term funding volumes, medium- and long-term debt maturities and liquidity reserves. This includes internalstress test indicatorsaimed at ensuringshort-termliquidity security beyond the one-month horizon required by regulations. These stress tests, based on bank- and/or market-specificscenarios, are broken down into various levels of stress in order to forecast the impact on the Group’s liquidity position.Adaptationof liquidity stress rules to all business lines takes assumptionsunique to each activity into account; the customer loan/deposit ratio is a relative measurement of the ● Group’s autonomy with respect to the financial markets;

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Risk Report Pillar III 2017

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