2018 Registration document and annual fi nancial report - BNP PARIBAS 319
5RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Capital management and capital adequacy
The new version of the Plan includes updated fi gures and takes account of changes in the Group s organisation and activities. It also takes account of the comments of the ECB and the Recovery College s participating authorities, which met in January 2018, as well as developments in European regulations.
This Recovery College, organised under the auspices of its supervisor, the ECB, brings together the authorities in 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 2018, 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 that may be needed by the authorities to prepare a plan for the resolution of BNP Paribas, should it become necessary.
The Bank also provided a series of templates, notably including an analytical statement of the Bank s and its subsidiaries liabilities (Liability Data Report), requested by the SRB to assist in its initial analysis of the future Minimum Requirement for own funds and Eligible Liabilities (MREL) available for bail-in.
In 2018, BNP Paribas took 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 any bank resolution measures.
The Crisis Management Group (CMG) and the Resolution College met in January 2018 to approve the resolution plan drafted by the SRB. The next meeting is due to be held in 2019.
Furthermore, in December 2018, BNP Paribas presented a resolution plan to the American authorities for its activities in the United States, pursuant to Rule 165(d) of the Dodd-Frank Act.
TLAC
The Total Loss Absorbing Capacity (TLAC) ratio requirement is 16% of risk-weighted assets as at 1 January 2019, rising to 18% by 1 January 2022, plus the 2.5% capital conservation buffer, BNP Paribas 1.5% G-SIBs buffer and BNP Paribas countercyclical capital buffer (see Appendix 3: Countercyclical capital buffer). The overall TLAC ratio requirement (excluding countercyclical capital buffer), is thus 20% and 22% of Group s risk-weighted assets in 2019 and 2022, respectively.
The TLAC requirement also provides for a minimum ratio of 6% of the leverage ratio denominator in 2019 and 6.75% in 2022. For BNP Paribas, the requirement calculated on the basis of the leverage is less constraining than that based on risk-weighted assets; therefore the latter applies.
On 1 January 2019, the Group had a TLAC ratio slightly higher than 21%, well above the overall TLAC requirement of 20%.
The debt issuance targets aimed at satisfying these requirements and their nature are described in the section Wholesale funding trends based on regulatory changes in section 5.8 Liquidity risk.
MREL
The MREL (Minimum Requirement for o wn f unds and Eligible Liabilities) is intended to apply to all European Union credit institutions and investment fi rms. The procedures for calculating this requirement, specifi c to each institution, are set to evolve as part of the forthcoming CRR 2 and BRRD 2 texts.
Changes in regulations
BNP Paribas closely tracks the regulatory developments relating to b ank r ecovery and r esolution, in particular:
■ the proposed amendments to the European directives and regulations on recovery and resolution (CRR, CRD 4, BRRD, SRMR) announced on 23 November 2016 and which were reviewed by the European Parliament and among Member States throughout 2018;
■ the work of the Financial Stability Board, in particular, on clearing house resolution, liquidity strategy and the practical implementation of bail-in tools;
■ discussions focused on the creation of a European Deposit Insurance Scheme (EDIS).
LEVERAGE RATIO The Basel 3/CRD 4 Regulation introduced the leverage ratio, whose main objective is to serve as a complementary measure to the risk-based capital requirements (back-stop principle).
The delegated act amending Regulation (EU) No. 575/2013 adopted by the European Commission on 10 October 2014, specifi es the changes in the methods for calculating the ratio relative to the initial 2013 text.
The leverage ratio is calculated by dividing Tier 1 capital by exposure calculated using the balance sheet assets and off-balance sheet commitments assessed according to a prudential approach. Derivatives and repurchase agreements are also adjusted.
The ratio is based on data from regulatory reports collected since 1 January 2014. It is available to the public since 1 January 2015 . On 23 November 2016, on the basis of the report submitted by EBA, the European Commission made a proposal to the European Parliament and to the Council for a new regulation amending Regulation (EU) No. 575/2013, including, among other items, the leverage ratio. The proposal confi rms the minimum level of 3%.
As part of fi nalising the Basel 3 agreements, on 7 December 2017 the Basel Committee announced the leverage ratio framework would be revised, with:
■ the establishment of an additional requirement ( buffer ) as a leverage ratio for global systemically important banks (G-SIBs). This leverage ratio buffer is equal to 50% of the G-SIBs buffer applicable to CET1 as described in the Capital adequacy paragraph;
■ the change in the method of measuring derivative fi nancial instruments and off-balance sheet exposures.
