2020 Universal registration document and annual financial report - BNP PARIBAS 329

5risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

Recovery Plan

The recovery plan, prepared at Group level, describes the possible recovery options if the Group were to find itself in a distressed situation. It contains information needed by the authorities to understand the Group s operations, resilience and capacity to absorb losses.

BNP Paribas submitted its updated Recovery Plan to its supervisor, the ECB, in September 2020. The Single Resolution Board (SRB) and other authorities can obtain the Recovery Plan from the ECB.

Prepared in accordance with the Financial Stability Board s recommendations, and the provisions of the French Monetary and Financial Code, this Recovery Plan was submitted to the Board of Director s Internal Control, Risk Management and Compliance Committee (CCIRC) for review and then to the Board of directors for approval (see chapter 2 Corporate governance and internal control).

The new version of the Plan includes updated figures and takes account of changes in the Group s organisation and activities. It is accompanied by a detailed description of the recovery scenarios used and the impacts of the recovery options identified. It also takes account of the comments of the ECB and the Recovery College s participating authorities, which met in January 2020, as well as developments in European regulations. It also incorporates lessons learned from dry runs conducted regularly by BNP Paribas on certain aspects of the plan with the participation of the Executive Management and the ECB.

This Recovery College, organised under the auspices of its supervisor, the ECB, brings together the authorities of the member countries of the European Union in which BNP Paribas has a presence, as well as the European Banking Authority.

Resolution documentation

In December 2020, BNP Paribas submitted a set of documents to the Autorité de contrôle prudentiel et de résolution (ACPR) to be forwarded to the Single Resolution Board (SRB). These documents contain information needed by the authorities to prepare a plan for the potential resolution of BNP Paribas.

Since 2016, the Bank provides annually a series of documents. These include an analytical declaration of the Bank and its subsidiaries liabilities (Liability Data Report), required by the SRB to carry out its analyses of future requirements for liabilities eligible for bail-in, as well as various financial analyses, a presentation on the Bank s organisational structure and analyses of its critical functions and operational continuity in resolution. These statements are in line with the requirements formalised by the EBA (on behalf of the Commission).

In 2020, BNP Paribas took also part in a series of working meetings of the Internal Resolution Team (IRT), including the SRB, the ACPR and other EU bank resolution authorities, under the auspices of the SRB.

The purpose of these meetings, in which a series of questionnaires completed by BNP Paribas were discussed, was to deepen the SRB s analyses of the Group s capacity to deal with a potential resolution.

The Crisis Management Group (CMG) and the Resolution College met in January 2021 to approve the resolution plan drafted by the SRB.

The resolution strategy recommended by the SRB for major institutions such as BNP Paribas includes bail-in which, in contrast to bail-out , involves the absorption of losses through the bank s internal resources. This implies the cancellation or reduction in the nominal value of a debt and/or its complete or partial conversion into equity. For major centralised banking groups such as BNP Paribas, this resolution strategy is applied at a Single Point of Entry (SPE), i.e. BNP Paribas SA, regardless of where the losses occur within the Group.

With regard to the US authorities, BNP Paribas presented a resolution plan for its activities in the United States, pursuant to Rule 165(d) of the Dodd-Frank Act in December 2018. The next plan will be submitted in 2021.

TLAC

In accordance with Regulation (EU) No. 2019/876, Global Systemically Important Banks (G-SIBs) have been subject to a two-fold TLAC requirement since 27 June 2019. This requirement includes, on the one hand, a minimum ratio expressed as a percentage of the risk- weighted assets, and, on the other hand, a minimum ratio expressed as a percentage of the leverage ratio exposures.

At 31 December 2020, the minimum TLAC requirement for the Group stood at 20.02% of the risk-weighted assets, resulting from:

■ a 16% TLAC minimum requirement (18% from 1 January 2022);

■ a 4.02% combined buffer requirement, in view of the capital conservation buffer at 2.5%, the G-SIBs buffer at 1.5% and the countercyclical capital buffer at 0.02%.

From 27 June 2019 to 31 December 2021, the Group s minimum TLAC requirement is 6% of the leverage ratio exposures. From 1 January 2022, this will rise to 6.75%.