NATIXIS_PILLAR_III_2017_EN

14 APPENDIX

Appendix 6: Glossary

Acronym/Term

Definition

European Directive on insurance and reinsurance undertakings intended to ensure that they comply at all times with their commitments towards policyholders in view of the specific risks incurred by such businesses. It aims to achieve an economic and prospective assessment of solvency based on three pillars – quantitative requirements (Pillar 1), qualitative requirements (Pillar 2) and information for the public and the supervisor (Pillar 3). Adopted in 2014, it was enacted into national law in 2015 and came into force on January 1, 2016. The difference between the actuarial rate of return on a bond and the actuarial rate of return on a risk-free loan with the same duration. Methodology for assessing and measuring the risks for each bank. SREP gives the prudential authorities a set of harmonized tools to analyze a bank’s risk profile from four different angles: business model, governance and risk management, risk to capital, and risk to liquidity and funding. The supervisor sends the bank the SREP decisions at the end of the process and sets key objectives. The bank must then “correct” these within a specific time. Single Resolution Mechanism: An EU-level system to ensure an orderly resolution of non-viable banks with a minimal impact on taxpayers and the real economy. The SRM is one of the pillars of the European Banking Union and consists of an EU-level resolution authority (Single Resolution Board - SRB) and a common resolution fund financed by the banking sector (Single Resolution Fund – SRF). A bank stress test simulates the behavior of a bank (or group of banks) under extreme but realistic economic scenarios (i.e. worsened prospects for growth, unemployment and inflation) to assess whether the bank’s (or banks’) capital reserves are sufficient to absorb such a shock. Like the VaR approach, stressed VaR is calculated based on a fixed econometric model over a continuous 12-month period under a representative crisis scenario relevant to the bank’s portfolio, using a “historical simulation” with “one-day” shocks and a confidence interval of 99%. However, unlike VaR, which uses 260 daily fluctuation scenarios on a sliding one-year period, stressed VaR uses a one-year historical window corresponding to a period of significant financial tension. The risk of losses or impairment on assets arising from changes in interest rates or exchange rates. Structural interest/exchange rate risks are associated with commercial activities and proprietary transactions. A financial instrument combining a bond product and an instrument, such as an option, providing exposure to any asset type (equities, forex, fixed-income, commodities). Such instruments may be backed by a (total or partial) guarantee on the investment. In a different context, the term “structured product” or “structured issue” can also refer to securities resulting from securitization transactions, for which a ranking of bearers is established. The Financial Stability Board (FSB) coordinates the comprehensive measures intended to reduce the moral hazard and risks posed by global systemically important financial institutions (G-SIFIs) to the global financial system. These institutions meet the criteria established by the Basel Committee as outlined in “Global systemically important banks: Assessment methodology and the additional loss absorbency requirement” and identified in a list published in November 2011. The FSB updates this list in November of each year. To date there are 29 such institutions. Tier 1 (T1) refers to the portion of a financial institution’s regulatory capital that is considered to be the most solid. It includes its capital stock and retained earnings allocated to reserves. The ratio of Tier1 capital to risk-weighted assets is a solvency indicator used in the Basel1, Basel2 and Basel3 prudential accords. Core capital including the financial institution’s consolidated shareholders’ equity minus regulatory deductions. Supplementary capital mainly consisting of subordinated securities minus regulatory deductions. Single Supervisory Mechanism Debt securities that are ranked below senior debt in terms of repayment priority. Spécialiste en Valeurs du Trésor (Government bond primary dealer). An agreement between two counterparties to exchange different assets, or revenues from different assets, until a given date. Specific Wrong Way Risk Single Resolution Fund Socially Responsible Investment

Solvency 2

Spread

SREP (Supervisory Review and Evaluation)

SRF SRI

SRM

SSM

Stress test

Stressed value at risk (stressed VaR)

Structural interest rate and exchange rate risk Structured issue/structured product

Subordinated notes

SVT

Swap

SWWR

Systemically important financial institution (SIFI)

Tier 1

Tier 1 capital

Tier 2 capital

Total Loss Absorbing Capacity

TLAC TMO

Taux moyen obligataire (average bond market rate).

Ratio of overall capital (Tier1 and Tier2) to risk-weighted assets.

Total Capital Ratio

176

NATIXIS Risk report Pillar III 2017