BPCE_PILLAR_III_2017

CAPITAL MANAGEMENT AND CAPITAL ADEQUACY Management of capital adequacy

Supervisory Review and Evaluation Process

SREP-ICAAP PROCESS As the supervisory authority under Pillar II, the ECB conducts an annual assessment of banking institutions. This assessment, referred to as the Supervisory Review and Evaluation Process (SREP), is primarily based onthe following: an evaluation based on information taken from prudential reports; ● documentationestablishedby each bankinginstitution,includingin ● particular the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP); an assessmentof the institution’sgovernance,business model and ● information system. Based on the conclusionsof the SREP carried out by the ECB in 2017, Groupe BPCE must maintain a phased-in consolidated Common Equity Tier1 ratio of 8.625%as from January 1, 2018,including: 1.5% in respect of Pillar II requirements (excluding Pillar II ● guidance); 1.875%in respect of the capital conservation buffer; ● 0.75% in respect of the buffer for global systemically important ● banks (G-SIB buffer). Outlook In 2018, Groupe BPCE as a whole will remain focused on its CET 1 ratio organic growth target (excludingcooperativeshare inflows), set at +50-or-morebasis points by the end of the 2018-2020 strategic plan, as wellas a target TLACratio of above21.5% from2019. In this respect, the removal of Groupe BPCE from the list of G-SIBs in 2017 had no impact, since the group has kept its target TLAC ratio above the regulatory minimum requirement and since the same prudential constraints will be applicable due to its D-SIB (Domestic SystemicallyImportantBank) status. MREL – TLAC The regulatory framework for bank resolution and bail-in was stabilized in 2015. New complementary indicators for capital adequacy and leverage ratios will be implemented via the Minimum Requirement for own funds and Eligible Liabilities (MREL) and Total Loss AbsorbingCapacity (TLAC). Groupe BPCE has already established internal oversight of these indicators. The MREL (Minimum Requirement for own funds and Eligible Liabilities) ratio was introduced by the BRRD. Senior unsecured debt with a maturity of more than one year and the Group’s own funds make up the numerator of the MREL ratio. In November 2015, the Single Resolution Board published a provisional methodology for setting the MREL requirement under the current regulatory framework. This methodology sets the MREL requirement based on risk-weighted assets equal to double the sum of total capital requirements,includingbuffers,minus 125 basis points. Data required for the MREL calculation are currently being collected, under the aegis of the Single ResolutionBoard, for the purpose of clarifyingthe determinationof the MREL and ensuring that Groupe BPCE complies with the requirement currently being set.

The total capital requirement has been set at 12.125% (excluding Pillar II guidance). With a Common Equity Tier 1 ratio of 15.3% at end-2017 (with phase-in measures), Groupe BPCE has exceeded the specific capital requirements setby the ECB. As regards the internal capital adequacy assessment under Pillar II, the principlesdefined in the ICAAP/ILAAPguidelinespublishedby the ECB in February 2017 were applied as of this year in Groupe BPCE’s ICAAP. The assessment is thus carried out using two different approaches: a “normative”approach aimed at measuringthe impact of internal ● stress tests within three years of the initial Pillar I regulatory position; an “economic” approach aimed at identifying, quantifying and ● hedging risks using internal capital over the short term (one year) and using internal methodologies.The methodologiesdevelopedby Groupe BPCE provide a better assessment of risks that are already covered under Pillar I, and also an additional assessment of risks that arenot covered by Pillar I. The results obtained using these two approaches confirmed the Group’s financial soundness and no capital buffer is necessary in addition tothe existing regulatorybuffers. Draft changes to the MREL’s regulatory framework and introduction of the TLAC ratio in Europe In the draft changes to the CRR/BRRD/CRDIV regulatory package of November 2016, the MREL requirement for G-SIIs would now be broken down asfollows: a Pillar I MREL requirement equal to the Total Loss Absorbing ● Capacity (TLAC) requirement, whose principles were set in November2015 by the Financial Stability Board; a Pillar II MREL requirement; ● an additional PillarII MRELGuidancetranche. ● The mainfeatures of these threecomponents are described below. Pillar I MREL (TLAC) This requirement only concerns G-SIIs. It has been set at 16% (excludingbuffers)of risk-weightedassets (with a minimumof 6% of the leverage ratio denominator)when it takes effect in 2019, and is raised to 18% of risk-weightedassets (with a minimumof 6.75% of the leverageratio denominator) as from 2022. Almost all TLAC-eligibleliabilities will have to meet a subordination criterion (contractual, statutory or structural). A new category of numerator-eligibleliabilities has been introduced by French law and is commonly referred to as senior non preferred debt. In the event of liquidation, these liabilities have a ranking between the ranking of own funds and other senior preferred debt. They must have a residual maturityof more than one year in order to be eligible forthe Pillar I MREL.

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Risk Report Pillar III 2017

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