2018 Registration document and annual fi nancial report - BNP PARIBAS 435
5RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Operational risk
■ the model is faithful to its operational risk input data, so that its results can be used easily by each of the Group s business lines. Most of the assumptions are therefore included in the data themselves;
■ it is prudent in its capital requirement calculations: the input data are thoroughly reviewed, and any supplemental risk data are added if needed to cover all relevant operational risks within the Group.
Regulatory AMA capital requirements are calculated as VaR (Value at Risk), or the maximum potential loss over one year, at a 99.9% confi dence level to calculate regulatory capital requirements. Capital requirements are calculated on an aggregate level using risk data from all Group entities in the AMA perimeter, then allocated to business lines and individual legal entities.
Fixed-parameter approaches
BNP Paribas uses fi xed-parameter approaches (basic or standard) to calculate the capital requirements for entities in the Group s prudential consolidation scope that are not covered by the internal model:
■ Basic approach: the capital requirement is calculated as the average over the past three years of a financial aggregate based on net banking income (the exposure indicator) multiplied by a unique alpha parameter set by the regulator (15% weighting);
■ Standardised approach: the capital requirement is calculated as the average over the past three years of a fi nancial aggregate based on net banking income multiplied by factors set by the regulator and corresponding to each business category. For the purposes of this calculation, all the Group s business lines are broken down into eight regulatory business categories.
RISK- WEIGHTED ASSETS AND CAPITAL REQUIREMENT
➤ TABLE 95 : OPERATIONAL RISK CAPITAL REQUIREMENT AND RISK-WEIGHTED ASSETS
In millions of euros
31 December 2018 31 December 2017 Variation
RWAs Capital
requirements RWAs Capital
requirements RWAs Capital
requirements
Advanced Measurement Approach (AMA) 56,935 4,555 49,961 3,997 6,974 558
Standardised approach 10,393 831 11,214 897 (821) (66)
Basic indicator approach 5,619 450 5,340 427 279 23
TOTAL OPERATIONAL RISK 72,947 5,836 66,515 5,321 6,432 515
The net increase in risk-weighted assets of EUR 6.4 billion in 2018 is largely due to:
■ risk-weighted assets have been brought to the level of the standardised approach within the AMA scope;
■ consolidation of entities into the prudential scope using the basic approach.
This increase is partially offset by a fall in risk-weighted assets using the standardised approach, due in particular to the deconsolidation of First Hawaiian Bank from the scope of the operational risk capital requirement calculation.
RISK MITIGATION TECHNIQUES AND INSURANCE POLICIES BNP Paribas Group deals with its insurable risks with the triple aim of protecting its balance sheet, its profi t and loss account and its staff. Its insurance set-up is based on risk identifi cation and assessment,
underpinned by risk mapping and by analysis of operational loss profi le, both historical and forward-looking.
The Group purchases insurance from leaders of the insurance market, covering computer crime, fraud, theft, business disruption, liability and other risks for which it may be held responsible. In order to optimise costs whilst effectively managing its exposure, the Group retains some well identifi ed risks whose impact in terms of frequency and cost is known or can be adequately estimated.
In selecting insurers, the Group pays close attention to the credit rating and claims paying ability of the companies concerned. Detailed information on risks incurred by BNP Paribas as well as risk assessment visits, enable insurers to assess the quality risk prevention within the Group, as well as the safeguard measures put in place and upgraded on a regular basis in light of new standards and regulations.
