2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS414

5 RISKS AND CAPITAL ADEQUACY PILLAR 3

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 fi nancing structure for the development of BNP Paribas business activities, and to ensure it is suffi ciently 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 defi nition of monitoring indicators which enable assessment of the Group s liquidity position under normal conditions and in crisis situations, the effi ciency of actions undertaken and compliance with regulatory ratios;

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

The Group s liquidity policy defi nes 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 Offi cer is granted authority by the Board of directors to manage the Group s liquidity risk. The Chief Executive Offi cer delegates this responsibility to the Group ALM 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 Committee is responsible for:

■ defi ning the Group s liquidity risk profi le;

■ monitoring compliance with regulatory liquidity ratios;

■ defi ning 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;

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

In particular, the Group ALM 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 Committee is tasked with defi ning 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;

■ identifi cation of possible actions for managing a crisis.

The Group ALM Committee meets every month under normal conditions and more often in stressed conditions. On a regular basis, specific meetings are dedicated to the business lines monitoring indicators, notably to ensure that they comply with the set objectives. The Group ALM Committee may hold meetings to deal with specifi c issues whenever required.

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 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.