NATIXIS -2020 Universal Registration Document

3 RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management

Performance monitoring and testing of VaR and SVaR Natixis’ internal model is based on a calculationof VaR and stressed VaR. To check that the calculation assumptions are respected, particularly the confidence interval of 99%, backtesting calculations are performed on the P&L on a daily basis. These involve comparing 99% VaR levels with actual and hypothetical daily P&L levels. The measurements are conducted on Natixis’ consolidated accounts and across all of its main activities. In the event that negative real or hypothetical P&L levels exceed the VaR calculation for the same day, an analysis is performed and explanations provided according to internally-defined criteria. The regulator is subsequentlycontacted to inform them of any such exceptions within Natixis’ authorized consolidation scope. In the event of too many exceptions over a period of one year, on a sliding annual basis, an add-on is made to the multiplying factor applied in calculating VaR and SVaR during measurements of Natixis’ capital. Incremental Risk Charge (IRC) The IRC is the capital charge required to cover rating migration risk and the default within one year of issuers for approved products in terms of specific interest rate risk. Calculated using a Monte Carlo internal simulation model, the IRC is a 99.9% value at risk which corresponds to the largest risk after eliminating the 0.1% of the worst outcomes over a period of one year. Rating and default migrations are simulated using an issuer correlation model and migration matrices over a capital horizon of one year. Positions are remeasured based on various scenarios. Thus, for each scenario, positionsmay be downgraded,upgradedor go into default. The liquidity horizon, which represents the time required to sell a position or hedge it in unfavorable market conditions, used in the IRC calculation model is one year for all positions and ailsl suers. The calibration of the transition matrix is based on Standard & Poor’s historical transition data. For both corporates and sovereigns, the historical depth exceeds 20 years. For issuers not rated by S&P, restatements are performed internally. Correlation assumptions are based on the rating of each issuer’s creditworthinesswithin the IRC horizon (one year). The simulation process is based on intrasector correlation inputs. The internal IRC calculationmodel used by Natixis was approved by the Autorité de Contrôle Prudentiel et de Résolution in 2012. In accordance with regulatory requirements, Natixis established an internal model validation policy as well as procedures. This model validation phase is a prerequisite for their use.

Stress tests and operational indicators In addition to VaR, SVaR and IRC measures, stress tests are used to simulate the impact of extreme market conditions on the value of Natixis’ portfolios as well as operational indicators: stress tests to measure potential losses on portfolios in 1) extreme market conditions. Natixis’ mechanism is based on two categories of stress tests: overall stress tests and dedicated stress tests for each business. Overall stress tests are subject to continuous review. They are performed daily and can be grouped into two categories: historic stress tests consist of reproducingsets of changes V in market parametersobservedduring past crises in order to create an ex-post simulation of the P&L changes recorded. While stress tests do not have any predictive value, they do make it possible to gauge the exposure of the portfolio to known scenarios. There are 8 hypothetical stress tests covering the most significant events since 1987, the year of the stock market crash, including the Lehman Brothers collapse in the 2008 period, through to the sovereign debt crisis in 2011, hypothetical stress tests are used to simulate changes in V market parameters for all the activities, based on plausible assumptions regarding one market’s predicted response compared with another’s, depending on the nature of the initial stress. Stresses are determined through a joint effort involving the risk division, the front office and Economic Research. A set of seven scenarios has been defined: fall in stock market indices combined with a flattening of 1. the yield curve and an increase in credit spreads, strong rise in European interest rates in an inflationary 2. environment, failure of a financial institution with a rise in credit spreads 3. and interest rates and a moderate fall in equity markets, commodity crisis based on a scenario of disruption to 4. supply due to geopolitical events, emerging market crisis reflecting the consequences of a 5. sudden withdrawal of capital from an emerging country during a global economic downturn (higher refinancing costs, stock market crash and depreciation of the currency against the dollar), failure of a high-profile corporate based on a credit market 6. shock, liquidity crisis characterized mainly by a sharp widening of 7. European interbank spreads, a widening of the liquidity spread and higher “peripheral” yields. Specific stress tests are also calculated daily in the management tools for all the portfolios and are governed by limits. They are set on the basis of the same severity standard and are aimed at identifying the main loss areas by portfolio.

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NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020