2020 Universal registration document and annual financial report - BNP PARIBAS444

5 risks and CaPital adequaCy Pillar 3

5

Liquidity risk

5.8 Liquidity risk

LIQUIDITY RISK MANAGEMENT POLICY [Audited]

OBJECTIVES The objectives of the Group s liquidity management policy are to secure a balanced financing structure for the development of BNP Paribas business activities, and to ensure it is sufficiently robust to cope with crisis situations.

The liquidity risk management framework relies on:

■ management indicators:

■ by volume, to ensure that businesses or activities comply with their liquidity targets set in line with the Group s funding capacity,

■ by price, via internal liquidity pricing;

■ the definition of monitoring indicators which enable assessment of the Group s liquidity position under normal conditions and in crisis situations, the efficiency of actions undertaken and compliance with regulatory ratios;

■ the implementation of liquidity risk management strategies based on diversification of funding sources with maturities in line with needs, and the constitution of liquidity reserves.

The Group s liquidity policy defines the management principles that apply across all Group entities and businesses and across all time horizons.

GOVERNANCE As for all risks, the Group Chief Executive Officer is granted authority by the Board of directors to manage the Group s liquidity risk. The Chief Executive Officer delegates this responsibility to the Group ALM Treasury Committee.

The Internal Control, Risk and Compliance Committee (CCIRC) reports quarterly to the Board of directors on liquidity policy principles and the Group s liquidity position.

The Group ALM Treasury Committee is responsible for:

■ proposing the Group s liquidity risk profile at the CCIRC and the Board of directors, for review and decision;

■ monitoring compliance with regulatory liquidity ratios;

■ defining and monitoring management indicators and calibrating the quantitative thresholds set for the Bank s businesses;

■ defining and monitoring liquidity risk indicators and associating quantitative thresholds to them if necessary;

■ defining and overseeing implementation of liquidity risk management strategies, including monitoring of business lines, under normal and stressed conditions.

In particular, the Group ALM Treasury Committee is informed about funding programmes and programmes to build up liquidity reserves, simulations in crisis conditions (stress tests), and about all events that may arise in crisis situations.

The Group ALM Treasury Committee is tasked with defining the management approach in periods of crisis (emergency plan). This framework is based on:

■ supervision of the emergence of a crisis by monitoring the market position and complying with thresholds set for a series of indicators;

■ governance of the activation of crisis management mode and the associated responsibilities;

■ identification of possible actions for managing a crisis.

The Group ALM Treasury Committee meets every month under normal conditions and more often in stressed conditions or to deal with specific issues.

The permanent members of the Group ALM Treasury Committee are the Chief Operating Officer (Chairman), the Deputy Chef Operating Officers heading up Core Businesses, the Chief Risk Officer, the Group Chief Financial Officer and the Group ALM Treasury Head. Other members represent the RISK Function, Finance Function and ALM Treasury. The Head of General Inspection and the Head of Compliance are also invited.

Liquidity risk is the risk that the Bank will not be able to honour its commitments or unwind or settle a position due to the market environment or idiosyncratic factors (i.e. specific to BNP Paribas), within a given timeframe and at a reasonable cost.

Liquidity risk reflects the risk of the Group being unable to fulfil current or future foreseen or unforeseen cash or collateral requirements, across all time horizons, from the short to the long term.

This risk may stem from the reduction in funding sources, draw down of funding commitments, a reduction in the liquidity of certain assets, or an increase in cash or collateral margin calls. It may be related to the bank itself (reputation risk) or to external factors (risks in some markets).

The Group s liquidity risk is managed under a global liquidity policy approved by the Group s ALM Treasury Committee. This policy is based on management principles designed to apply both in normal conditions and in a liquidity crisis. The Group s liquidity position is assessed on the basis of internal indicators and regulatory ratios.

LIQUIDITY RISK MANAGEMENT POLICY