BPCE_REGISTRATION_DOCUMENT_2017

5 FINANCIAL REPORT

IFRS Consolidated Financial Statements of Groupe BPCE as at December 31, 2017

Inputs relating to all such Level 2 instrumentswere demonstratedto be observable and documented. From a methodology perspective, observability is based on four inseparablecriteria: inputs are derived from external sources (primarily a recognized ● contributor, for example); they are updated periodically; ● they are representative of recent transactions; ● their characteristics are identical to the characteristics of the ● transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented. The fair value of instruments obtained using valuation models is adjusted to take account of liquidity risk (bid-ask), counterpartyrisk, the risk relating to the cost of funding uncollateralizedor imperfectly collateralizedderivatives,internalcredit risk (measurementof liability derivative positions), as well as modeling risk and inputrisk. The margin generated when these instruments begin trading is immediately recognized in income. LEVEL 3: VALUATION USING UNOBSERVABLE MARKET INPUTS Level 3 comprises instrumentsmeasured using unrecognizedmodels and/or models based on unobservable market data, where they are liable to materially impact the valuation. This mainlyincludes: unlisted shares whose fair value could not be determined using ● observableinputs; private equity securitiesnot listed on an activemarket,measuredat ● fair value with models commonly used by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involves a judgement call; structured securities or securities representative of private ● placements, held bythe Insurancebusinessline; hybrid interest rate and currency derivatives and credit derivatives ● that arenot classified inLevel 2; instruments with adeferredday-onemargin; ● shares of UCITS for which the fund has not publisheda recent NAV ● at the valuationdate, or for which there is a lock-up period or any

other constraint calling for a significant adjustment to available market prices (NAV, etc.) in respect of the low liquidityobservedfor such shares; instruments carried at fair value on the balance sheet and for ● which data are no longer availabledue to a freeze in trading in the wake of the financial crisis, which were not reclassified within “Loans and receivables”pursuant to the amendmentto IAS 39 and IFRS 7 published onOctober13, 2008 (see below). When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data. In accordance with the Ministerial Order of February 20, 2007, as amended by the Order of November 23, 2011 on lending institutions and investment companies and pursuant to the European regulation of June 26, 2013 (CRR) on the Basel III requirements,for each of the models used, a descriptionof crisis simulationsapplied is provided in Chapter3 “RiskManagement.” Under IAS 39, day-one profit should be recognized only if it is generated by a change in the factors that market participantswould considerin setting a price, i.e. only if the model and parametersinput into thevaluationare observable. If the selected valuation model is not recognized by current market practices, or if one of the inputs significantly affecting the instrument’s valuation is not observable, the trading profit on the trade date cannot be recognized immediately in the income statement.It is taken to income on a straight-linebasis over the life of the transaction or until the date the inputs become observable. Any losses incurred at the trade date are immediatelyrecognized in income. At December 31, 2017, instruments for which the recognition of

day-one profit/loss has been deferred mainly included: multi-underlyingstructured equity and index products; ● synthetic loans; ● options onfunds (multi-assetsand mutual funds); ● structured fixed income products; ● securitization swaps. ● These instrumentsare almost alllocated at Natixis.

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Registration document 2017