NATIXIS_PILLAR_III_2017_EN

3 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY Regulatory framework

Regulatory framework 3.1

Since January 1, 2014, the Capital Requirements Directive (CRD) IV and the Capital Requirements Regulation (CRR) have applied Basel 3 regulations in Europe with immediate effect. The CRD IV was enacted into French law by the French Ministerial Order of November 3, 2014. This regulatory framework, aimed at reinforcing the financial strength of banking institutions, has resulted in: a stricter definition of the capital items eligible to meet a regulatory capital requirements; reinforced regulatory capital requirements, in particular for a counterparty risk on derivatives; higher ratios requirements, specifically regarding CET1 capital a and capital buffers: a capital conservation buffer, which will have to represent j 2.5% of total risk exposures by 2019, a contracyclical capital buffer, i.e. the average of the j contracyclical capital buffer of each country in which Natixis holds risk exposures, weighted by the amount of said exposures. The rate applied in France is 0%, a systemic risk buffer, i.e. an additional requirement for j global systemically important banks (G-SIBs). Natixis is not subject to this buffer; in addition, other mechanisms have been introduced, including a mechanisms to limit dividend payouts, interest on Additional Tier One (AT1) subordinated debt and variable compensation (Maximum Distributable Amount, or MDA). All of these new provisions were accompanied by a phase-in mechanism, with the aim of gradually implementing the new requirements.

As under Basel 2, the Basel 3 regulatory provisions are divided into three pillars: Pillar I: a set of rules defining the measurement of risks and a capital based on various possible regulatory methodologies and minimum observable requirements; Pillar II: a mechanism governing the role of the banking a supervisory authorities, allowing them to define specific regulatory capital requirements for each institution in accordance with their risks and internal governance and oversight systems, measured using the economic approach; Pillar III: requires institutions to disclose several items a highlighting the level of risks incurred, capital adequacy and the adequacy of their management. This mechanism was considerably enhanced in 2016 with the publication of new guidelines by the EBA. Finally, as of November 2014, the European Central Bank is directly responsible for supervising significant European banks. The implementation of this new supervisory framework has continued since then. Drawing on the Supervision Review and Evaluation Process (SREP), the ECB is setting ratio levels for each institution to observe. Each institution under its purview is assigned a Pillar 2 Requirement (P2R) as well as Pillar 2 Guidance (P2G). As a result of the SREP 2017 process, Natixis must observe a phased-in CET1 ratio of 8.375% in 2018, 2% of which in respect of Pillar II (excluding P2G) and 1.875% in respect of the capital conservation buffer (in 2017, the phased-in CET1 ratio required was 7.75%, of which 1.25% in respect of the capital conservation buffer). These items do not include the level of the contracyclical capital buffer, which was very low at December 31, 2017 and the measurement of which is based on exposures to countries applying non-zero contracyclical capital buffers.

30

NATIXIS Risk report Pillar III 2017