Capital management and capital adequacy 3.3


Regulatory framework

Regulatory monitoring of credit institutions’ capital is based on regulations defined by the Basel Committee. These regulations were reinforced following the introduction of Basel III, with an increase in the level of regulatory capital requirements and the introductionof new risk categories. Basel III recommendations were incorporated in EU directive 2013/36/EU(Capital Requirementsdirective – CRD IV) and regulation No. 575/2013 (Capital Requirements Regulation – CRR) of the EuropeanParliamentand of the Council.As of January 1, 2014, all EU credit institutions are subject to compliance with the prudential requirements setout in these texts. Credit institutions subject to the CRD and CRR are thus required to continuously observe: the Common Equity Tier1 (CET1)ratio; ● the Tier 1 ratio, i.e. CET1 plus additional Tier 1 capital (AT1); ● the total capital ratio, i.e. Tier 1 plus Tier2 capital; ● and, as of January 1, 2016, the capital bufferswhich can be used to ● absorb losses inthe event of tensions. These buffers include: a capital conservation buffer, comprised of Common Equity - Tier 1, aimed at absorbing losses in times of serious economic stress, a countercyclicalbuffer, aimed at protecting the banking sector - from periods of excess aggregate credit growth. This common equity surchargeis supposedto be adjustedover time in order to increase capital requirements during periods in which credit growth exceeds its normal trend and to relax them during slowdown phases, a systemicrisk buffer for each MemberState aimed at preventing - and mitigating the systemic risks that are not covered by regulations (negligible for Groupe BPCE), the different systemic risk buffers aimed at reducing the risk of - failure of systemically important financial institutions. These buffers are specific to each bank. Groupe BPCE is on the list of other systemically important institutions (O-SIIs) and global systemically important banks (G-SIBs). As these buffers are not cumulative, thehighest buffer applies.

The ratios are equal in terms of the relationshipbetween capital and the sum of: credit and dilutionrisk-weighted assets;and ● capital requirements for the prudential supervision of market risk ● and operationalrisk, multiplied by12.5. They are subject to a phase-in calculation aimed at gradually transitioningfrom Basel 2.5 to Basel III. These phase-inarrangements mainly cover: changes in capital ratios before buffers: since 2015, the minimum ● Common Equity Tier 1 ratio has been 4.5%, the minimum Tier 1 capital ratio 6%, and the minimum total capital ratio 8%; changes in capital buffers, applied gradually from fiscal year 2016 ● until 2019: the capital conservation buffer, comprised of Common Equity - Tier 1, is set for 2019 at 2.5% of the total amount of risk exposures (0.625% as from January 1, 2016, plus 0.625% per year until 2019), Groupe BPCE’s countercyclical buffer is the EAD-weighted - average of the buffers defined for each of the Group’s countries of operation. Groupe BPCE’s maximum countercyclicalbuffer as from January 1, 2016 is 0.625%. As most of Groupe BPCE’s exposures are located in countries whose countercyclicalbuffer has been set at 0%, the Group considers that this rate will be very close to 0%, the buffer for G-SIBs is currently set at 1% for the Group by - 2019 (0.25% as from January 1, 2016, plus an additional 0.25% per yearuntil 2019); the gradual incorporation of Basel III provisions: ● the new regulationhas eliminatedthe majority of the prudential - filters, and in particularthose relating to unrealizedcapital gains and losses on equity instruments and available-for-sale debt securities. This elimination is being implementedgradually each year in 20% increments for Common Equity Tier 1 capital. Accordingly, as of 2017, 80% of unrealized capital gains are included. Unrealized capital losses have been included since 2014, in accordance with Articles 14 and 15 of ECB regulation (EU) - No. 2016/445datedMarch 14, 2016, unrealizedcapitalgains and losses on sovereign securities are no longer subject to an exemption as of October 1, 2016. In 2017, 80% of unrealized capital gainswere included,


Registration document 2017

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