2012 Registration document and annual financial report - BNP Paribas

5RISKSAND CAPITAL ADEQUACYCapital management and capital adequacySIGNIFICANT SUBSIDIARIESThe capital requirements of BNP Paribas’ significant subgroups andsubsidiaries are given in Appendix.The following subgroups are considered significant, based on the criterionthat their risk-weighted assets amount to more than 3% of the Group’stotal risk-weighted assets at 31 December 2012:■ BNP Paribas Fortis;■ Banca Nazionale del Lavoro (BNL);■ BancWest;■ BNP Paribas Personal Finance;■ BGL BNP Paribas.The risk-weighted assets reported correspond to the sub-consolidationscope of each group. Information related to the concerned perimetersis described in note 8.b to the Financial Statements under the followingheadings: Belux Retail Banking, Retail Banking in Italy (BNL bancacommerciale), Retail Banking in the United States and BNP ParibasPersonal Finance. Differences between consolidation and prudentialperimeters exist for these five significant subsidiaries, as mentioned insection 5.2.INDIVIDUAL MONITORING BY THE FRENCHSUPERVISORTwo entities, BNP Personal Finance and BNP Paribas Home Loan SFH,are monitored individually by the French supervisor (Autorité de ContrôlePrudentiel), according to the supervisor’s guidelines and pursuant todiscussions between this authority and BNP Paribas.REGULATORY CAPITAL [Audited] (1)5The BNP Paribas Group is required to comply with the French regulationthat transposes European Union capital adequacy directives (Directiveon the Capital Adequacy of Investment Firms and Credit Institutions andFinancial Conglomerates Directive) into French law.In the various countries in which the Group operates, BNP Paribas alsocomplies with specific regulatory ratios in line with procedures controlledby the relevant supervisory authorities. These ratios mainly address theissues of capital adequacy, risk concentration, liquidity and asset/liabilitymismatches.Since 1 January 2008, the capital adequacy ratio has been calculatedin accordance with the Decree issued by the Ministry of the Economy,Finance and Industry on 20 February 2007 introducing the Basel 2 capitaladequacy ratio, i.e. regulatory capital expressed as a percentage of thesum of:■ risk-weighted assets calculated using the standardised approach orthe internal ratings based approach depending on the entity or Groupbusiness concerned;■ the regulatory capital requirement for market and operational risks,multiplied by 12.5. The capital requirement for operational riskis measured using the basic indicator, standardised or AdvancedMeasurement Approach, depending on the Group entity concerned.BREAKDOWN OF REGULATORY CAPITALRegulatory capital is determined in accordance with Comité de laRéglementation Bancaire et Financière (CRBF) regulation 90-02 dated23 February 1990. It comprises three components – Tier 1 capital, Tier 2capital and Tier 3 capital – determined as follows:■ core capital (Tier 1) corresponds to consolidated equity (excludingunrealised or deferred gains and losses), adjusted for certain itemsknown as “prudential filters”. The main adjustments consist of(i) deducting the planned dividend for the year, as well as goodwilland other intangibles, (ii) excluding consolidated subsidiaries that arenot subject to banking regulations – mainly insurance companies –and (iii) applying limits to the eligibility of certain securities, such asundated super subordinated notes;■ supplementary capital (Tier 2) comprises some subordinated debtand any positive credit and counterparty risk valuation differencesbetween provisions for incurred losses taken under the book methodand expected losses on credit exposure measured using the internalratings based approach;■ a discount is applied to subordinated debt with a maturity of less thanfive years, and dated subordinated debt included in Tier 2 capital iscapped at the equivalent of 50% of Tier 1 capital. Total Tier 2 capitalis capped at the equivalent of 100% of Tier 1 capital;■ Tier 3 capital comprises subordinated debt with shorter maturitiesand can only be used to cover a certain proportion of market risks;■ the following items are deducted for the purpose of calculatingregulatory capital, half from Tier 1 capital and half from Tier 2 capital:(i) the carrying amount of investments in credit institutions and financecompanies accounted for by the equity method; (ii) the regulatorycapital of credit institutions and finance companies more than 10%owned by the Group; (iii) the portion of expected losses on creditexposure measured using the internal ratings based approach whichis not covered by provisions and other value adjustments.(1) In the Registration document, information identified by the ranking “Audited” are information which are integral part of the notes to the consolidated financial statements underthe information required by IFRS 7, IFRS 4 and IAS 1, and are covered by the opinion of the Statutory Auditors on the consolidated Financial statements.2302012 Registration document and annual financial report - BNP PARIBAS