BPCE_PILLAR_III_2017

APPENDICES Glossary

Key technical terms

Contract in which two parties to a derivative (financial contract, securities lending, repurchase agreement)agree to net their reciprocaldebts arising from these contracts; in that case, settlementof these debts concerns only a net balance, particularly in the event of default or termination. Under a master netting agreement, this mechanism isapplied tomultipletransactions An equity security issued by a corporation, representing a certificate of ownership and entitling the holder (the “shareholder”)to a proportionalshare in the distributionof any profits or net assets, as well as a voting right atthe AnnualGeneralShareholders’Meeting An organizationthat specializesin assessingthe creditworthinessof issuers of debt securities, i.e. their ability to honor theircommitments (repayment of principaland interestwithin the contractualperiod) Level ofrisk, expressedthroughquantitativeor qualitativecriteria,by type of risk and businessline, that the Group is preparedto acceptgiven its strategy.The risk appetiteexercise is one of the key strategic oversight toolsavailable tothe Group’smanagement team Approach used to determine capital requirements for credit risk under Pillar I of Basel II. In this approach, therisk weightings used in the capital calculationare determined by theregulator A supervisoryframeworkaimedat better anticipatingand limitingthe risks borne by credit institutions.It focuses on banks’ credit risk, market risk and operational risk. The terms drafted by the Basel Committeewere adopted in Europe through a Europeandirective and have been applicable in France since January 1, 2008 Changes in the supervisoryframeworkfor banks, incorporatingthe lessonsdrawn from the 2007-2008 financial crisis, meant to complementthe Basel II accords by enhancingthe quality and quantity of the minimum capital requirements applicable to financial institutions. Basel III also establishes minimum requirements for liquidity risk management (quantitative ratios), defines measures aimed at limiting procyclicality in the financial system (capital buffers that vary according to the economic cycle) and reinforces requirements for financial institutionsdeemed tobe systemically important (see Acronyms) Directive 2013/36/EU (CRD IV) and regulation (EU) No. 575/2013 (CRR), which transpose Basel II in Europe. In conjunction with the EBA’s (European Banking Authority) technical standards,they define European regulations for thecapital,majorrisk, leverage and liquidity ratios A ratio indicatingthe portion of net banking income used to cover operatingexpenses(the company’s operatingcosts). It is calculated by dividing operating costs bynet banking income A transferableasset or guaranteepledgedto securereimbursementon a loan in the event the borrower fails tomeet itspayment obligations The percentage by which a security’s market value is reduced to reflect its value in a stressed environment (counterparty risk or marketstress) A financial security or financial contract whose value changes based on the value of an underlying asset, which may be either financial (equities, bonds, currencies, etc.)or non-financial (commodities, agricultural products, etc.)in nature. This changemay coincidewith a multipliereffect (leverageeffect). Derivatives can take the form of either securities (warrants, certificates, structured EMTNs, etc.) or contracts (forwards, options, swaps, etc.). Exchange-traded erivativescontracts arecalled futures A financialproductwhoseunderlyingasset is a credit obligationor debt security(bond).The purposeof the credit derivative is to transfer credit risk without transferringthe asset itself for hedging purposes. One of the most common formsof credit derivativesis the credit default swap (CDS) Core capital including the financial institution’s consolidated shareholders’ equity minus regulatory deductions Supplementary capital mainly consisting of subordinated securitiesminus regulatorydeductions The price that would be receivedto sell an asset or paid to transfera liability in a standardarm’s length transactionbetweenmarket participantsat the measurementdate. Fair value is thereforebased on the exit price In a banking context, liquidity refers to a bank’s ability to cover its short-termcommitments.Liquidity also refers to the degree to which an asset can be quickly bought or sold on a market without a substantial reduction in value See securitization See securitization See securitization Exposurebefore theimpact ofprovisions, adjustmentsand risk mitigationtechniques

Netting agreement

Share

Rating agency

Risk appetite

Standardized approach

Basel III(the Basel Accords)

Basel III(the Basel Accords) “Bank acting asoriginator” “Bank acting assponsor” “Bank acting asinvestor”

CRD IV/CRR

Cost/income ratio

Collateral

Haircut

Derivative

Credit derivative Gross exposure

Tier 1 capital Tier 2 capital

Fair value

Liquidity

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Risk Report Pillar III 2017