312 2019 Universal registration document and annual financial report - BNP PARIBAS

5 risks and CaPital adequaCy Pillar 3

5

Capital management and capital adequacy

MREL

The MREL (Minimum Requirement for own funds and Eligible Liabilities) is intended to apply to all European Union credit institutions and investment firms. The procedures for calculating this requirement, specific to each institution, have evolved as part of the CRR 2 and BRRD 2 texts. Unlike the TLAC, for which the regulatory requirements became applicable immediately after the CRR 2 came into force (27 June 2019), regulatory requirements in relation to the MREL arising from BRRD 2 must be transposed into French law, which is expected by December 2020. After an industry consultation period, the SRB also plans to publish a new set of rules reflecting the regulatory changes in the second quarter of 2020. Institutions are obliged to comply with their MREL requirement from 1 January 2024 at the latest. However, resolution authorities have the opportunity to set a transitional MREL requirement starting from 1 January 2022.

Changes in regulations

BNP Paribas closely tracks the regulatory developments relating to bank recovery and resolution, in particular:

■ the transposition of the directives BRRD 2 and CRD 5 into French law;

■ the work of the Financial Stability Board, in particular, on clearing house resolution, liquidity strategy, the practical implementation of bail-in tools, and more generally on requirements on resolution;

■ discussions focused on the creation of a European Deposit Insurance Scheme (EDIS).

LEVERAGE RATIO The leverage ratio s main objective is to serve as a complementary measure to the risk-based capital requirements (back-stop principle).

It is calculated as the ratio between Tier 1 capital and an exposure measure calculated using on- and off-balance sheet commitments valued using a prudential approach. In particular, derivatives and repurchase agreements are also adjusted.

At a European level, the leverage ratio requirement is applied gradually in accordance with the provisions contained in the CRR and CRR 2:

■ since 1 January 2014, the leverage ratio has been the subject of a statement submitted to the ECB via regulatory reports;

■ since 1 January 2015, banks have been required to publish this ratio under Pillar 3;

■ from 28 June 2021, institutions will be subject to a minimum leverage ratio requirement of 3%;

■ from 1 January 2022, Global Systemically Important Banks (G-SIBs) will be subject to an additional leverage requirement of 50% of the institution s G-SIBs buffer (see Capital adequacy section).

Processes used to manage the risk of excessive leverage

Monitoring of the leverage ratio is one of the responsibilities of the Capital Committee (as described in the section Capital management hereafter).

Factors that had an impact on the leverage ratio during the period to which the disclosed leverage Ratio refers

The leverage ratio was 4.6% as of 31 December 2019, compared to 4.5% as of 31 December 2018.

Since 31 December 2018, the exposures used for the leverage ratio take into account the exemption related to centralised exposures with the Caisse des dépôts et consignations as regulated savings.

➤ TABLE 23: LEVERAGE RATIO ITEMISED

➤ Summary reconciliation of accounting assets and leverage ratio exposures (EU LRSum)

In billions of euros 31 December 2019 31 December 2018

1 Total assets as per published financial statements 2,165 2,041

2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation (244) (215)

4 Adjustments for derivative financial instruments (102) (80)

5 Adjustment for securities financing transactions (SFTs)(*) (5) (5)

6 Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 176 160

EU-6b Adjustment for exposures exempt from the total exposure for the purposes of the ratio in respect of article 429, paragraph 14, of Regulation (EU) No. 575/2013 (15) (17)

7 Other adjustments (19) (18)

8 LEVERAGE RATIO TOTAL EXPOSURE MEASURE 1,955 1,864

(*) Securities Financing Transactions: repurchase agreements and securities borrowing/lending.