2012 Registration document and annual financial report - BNP Paribas

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5RISKSAND CAPITAL ADEQUACYRisk management5Additional information about risk definitionsAlthough a lot of material has been written on the classification ofbanking risks, and industry regulations have produced a numberof widely accepted definitions, there is still no comprehensiveaccount of all of the risks to which banks are exposed. Significantprogress has nevertheless been made in understanding theprecise nature of risks and how they interact. The interactionbetween these risks has not yet been quantified, but is capturedby global stress scenarios. The following comments review theGroup’s latest conceptual developments.■ Market risk and credit/counterparty riskIn Fixed Income trading books, credit instruments are valuedon the basis of bond yields and credit spreads, which representmarket parameters in the same way as interest rates or foreignexchange rates. The credit risk arising on the issuer of the debtinstrument is therefore a component of market risk known asissuer risk.Issuer risk is different from counterparty risk. In the case of creditderivatives, issuer risk corresponds to the credit risk on theunderlying asset, whereas counterparty risk represents the creditrisk on the third party with whom the derivative was contracted.Counterparty risk is a credit risk, while issuer risk is a componentof market risk.■ Operational risk, credit risk and market riskOperational risk arises from inadequate or failed internalprocesses of all kinds, ranging from loan origination and marketrisk-taking to transaction execution and risk oversight.However, human decisions taken in compliance with applicablerules and regulations cannot give rise to operational risk, evenwhen they involve an error of judgment.Residual risk, defined by internal control regulations as the riskthat credit risk mitigation techniques prove less efficient thanexpected, is considered to derive from an operational failure andis therefore a component of operational risk.CONCENTRATION RISKConcentration risk and its corollary, diversification effects, are embeddedwithin each risk, especially for credit, market and operational risks usingthe correlation parameters taken into account by the corresponding riskmodels.It is assessed at consolidated Group level and at financial conglomeratelevel.ASSET-LIABILITY MANAGEMENT RISKAsset-liability management risk is the risk of incurring a loss as a resultof mismatches in interest rates, maturities or nature between assets andliabilities. For banking activities, asset-liability management risk arisesin non-trading portfolios and primarily relates to global interest raterisk. For insurance activities, it also includes the risk of mismatchesarising from changes in the value of shares and other assets (particularlyproperty) held by the general insurance fund.BREAKEVEN RISKBreakeven risk is the risk of incurring an operating loss due to a changein the economic environment leading to a decline in revenue coupledwith insufficient cost-elasticity.STRATEGY RISKStrategy risk is the risk that the Bank’s share price may fall because ofits strategic decisions.LIQUIDITY AND REFINANCING RISKLiquidity and refinancing risk is the risk of the Bank being unable tofulfil its obligations at an acceptable price in a given place and currency.INSURANCE SUBSCRIPTION RISKInsurance subscription risk corresponds to the risk of a financial losscaused by an adverse trend in insurance claims. Depending on the typeof insurance business (life, personal risk or annuities), this risk may bestatistical, macro-economic or behavioural, or may be related to publichealth issues or natural disasters. It is not the main risk factor arisingin the life insurance business, where financial risks are predominant.2422012 Registration document and annual financial report - BNP PARIBAS
RISKS AND CAPITAL ADEQUACYRisk management5SUMMARY OF RISKS➤ TABLE 8: RISKS MONITORED BY THE BNP PARIBAS GROUPRisks affecting the Group’s capitaladequacyRisks affectingthe Group’s value(share price)Risk coveredMeasurementandmanagementmethod (4)Pillar 1 ICAAP (5) (Pillar 2)Risk coveredMeasurementandmanagementmethod (4)Credit risk ✓ Basel 2.5 ✓ Basel 2.5Counterparty risk ✓ Basel 2.5 ✓ Basel 2.5Securitization ✓ Basel 2.5 ✓ Basel 2.5Market risk ✓ Basel 2.5 ✓ Basel 2.5Equity risk ✓ Basel 2.5 ✓ Basel 2.5Operational risk ✓ Basel 2.5 ✓ Basel 2.5Concentration risk (1)Asset & liability management risk (2)Breakeven riskLiquidity and Refinancing riskInsurance risks (3) , includinginsurance subscription risks✓✓InternalModelInternalModelInternal✓ ModelStrategy risk ✓ ProceduresQuantitativeandqualitativerules; stress✓testsReputation risk ✓ ProceduresInternalModelAdditional riskidentified byBNP Paribas(1) Concentration risk is managed within credit risk at BNP Paribas.(2) Asset & liability management risk comes under what the banking supervisors call global interest rate risk.(3) Insurance risks are not included in the scope of banking activities; insurance businesses are exposed to market risk, operational risk and insurancesubscription risk.(4) The CRD 3 , transposed in French law by the Decree of the 20 February 2007 amended, implements the Basel 2.5 regulation for securitisation andmarket risk. Modifications introduced by CRD 3 are described in the corresponding chapters hereafter. The measurement methods for other types ofrisks remain unchanged.(5) Internal Capital Adequacy Assessment Process.✓52012 Registration document and annual financial report - BNP PARIBAS 243
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2012REGISTRATION DOCUMENTAND ANNUAL
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2012 Registration documentand annua
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1GROUP PRESENTATION1.1 Group presen
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GROUP PRESENTATIONPresentation of a
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1GROUPPRESENTATIONBNP Paribas and i
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1GROUPPRESENTATION1282012 Registrat
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2CORPORATEGOVERNANCEBoard of Direct
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2CORPORATEGOVERNANCEExecutive Commi
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32012REVIEW OF OPERATIONSBNP Pariba
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32012REVIEW OF OPERATIONSOutlook3.6
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32012REVIEW OF OPERATIONSLiquidity
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4CONSOLIDATEDFINANCIAL STATEMENTS -
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5RISKSAND CAPITAL ADEQUACYSovereign
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5RISKSAND CAPITAL ADEQUACYLiquidity
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5RISKSAND CAPITAL ADEQUACYOperation
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5RISKSAND CAPITAL ADEQUACYComplianc
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5RISKSAND CAPITAL ADEQUACYInsurance
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5RISKSAND CAPITAL ADEQUACYInsurance
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5RISKSAND CAPITAL ADEQUACYAppendice
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5RISKSAND CAPITAL ADEQUACYAppendix
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6INFORMATIONON THE PARENT COMPANY F
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7ARESPONSIBLE BANK: INFORMATION ON
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8GENERALINFORMATIONDocuments on dis
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8GENERALINFORMATIONFounding documen
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8GENERALINFORMATIONStatutory Audito
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8GENERALINFORMATIONStatutory Audito
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9STATUTORYAUDITORSStatutory Auditor
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10PERSON RESPONSIBLE FOR THE REGIST
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11TABLE OF CONCORDANCEHeadings as l
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HEAD OFFICE16, boulevard des Italie
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