BPCE - 2018 Risk report / Pillar III

14 APPENDICES Glossary

Key technical terms

An appraisal by a financial rating agency (Fitch Ratings, Moody’s, Standard & Poor’s) of the creditworthiness of an issuer (company,governmentor other publicentity)or a transaction(bond issue, securitization, covered bond). Therating has a direct impact on the costof raising capital An organizationthat specializesin assessingthe creditworthiness of issuersof debt securities, ability tohonor theircommitments (repaymentof capital and interestwithin thecontractualperiod) The securitizationof an exposurethat is alreadysecuritizedwherethe risk associatedwith an underlying pool of exposures i tranchedandat leastone of theunderlying exposures i a securitization position Levelof risk,expressed throughquantitativeor qualitativecriteria,by typeof riskandbusiness line,thatthe Group is preparedto accept given its strategy.The risk appetiteexercise is one of the key strategic oversight tools available toheGroup’s management team An equitysecurityissuedby a corporation, representinga certificateof ownershipand entitlingthe holder (the“shareholder”) to a proportional sharein the distributionof anyprofitsor net assets,as wellas a voting right at theAnnualGeneral Shareholders’ Meeting A transactionwherebycreditrisk on loan receivables is transferredto investorsby an entity throughthe issuanceof negotiablesecurities.Thismay involvethe transferof receivables (physicalsecuritization) or the transferof risks only (credit derivatives).Some securitizationtransactionsare subordinatedthroughthe creation of tranches: ABS – Asset-BackedSecurities, i.e. instruments representinga pool of financial assets (excluding - mortgage loans), whose performance is linkedto thatof theunderlying asset or pool of assets; CDOs– Collateralized Debt Obligations, i.e. debt securitiesbackedby a pool of assetswhichcan be - eitherbank loans(mortgages)or corporatebonds.Interestand principalpaymentsmay be subjectto subordination ( i.e. throughthecreation of tranches); CLOs – CollateralizedLoan Obligations, i.e. credit derivativesbacked by a homogeneouspool of - commercial loans; CMBS– Commercial Mortgage-Backed Securities; - RMBS – ResidentialMortgage-BackedSecurities, i.e. debt securitiesbacked by a pool of assets - consisting of residential mortgage loans; Bank acting as originator:the securitizationexposuresare the retained positions,even where not - eligible for thesecuritization framework dueto theabsence ofsignificantandeffectiverisk transfer; Bankactingas investor: investmentpositions purchased in third-party deals. - Bankactingas sponsor:a bankis considereda “sponsor” if it, in factor in substance,managesor advises the program, places securitiesinto the market, or provides liquidity and/or credit enhancements.The program may include, for example, asset-backedcommercialpaper (ABCP) conduit programs and structured investmentvehicles.Thesecuritization exposures includeexposures to ABCPconduitsto which thebankprovidesprogram-wide enhancements, liquidity andotherfacilities The risk of losses or impairmenton assets arising from changes in interest rates or exchangerates. Structural interestrateandforeignexchangerisksareassociatedwithcommercialactivitiesandproprietary transactions An agreementbetweentwocounterparties to exchangedifferentassets,or revenuesfromdifferentassets, until a given date Core capital including the financial institution’s consolidatedshareholders’equity minus regulatory deductions Supplementary capital mainly consisting of subordinated securities minus regulatory deductions

Rating

i.e. their

Rating agency

Resecuritization

Risk appetite

Share

Securitization

Structural interest rateandexchange rate risk

Swap

Tier 1capital Tier 2 capital

Total capital ratio

Ratioof totalcapital (Tier1 and2) torisk-weighted assets (RWA)

A measurementof the magnitudeof an asset’s price fluctuationand thus a measurementof its risk. Volatilitycorresponds to thestandard deviation of theasset’simmediate returnsover a given period

Volatility

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Risk Report Pillar III 2018