2012 Registration document and annual financial report - BNP Paribas

RISKS AND CAPITAL ADEQUACYLiquidity and funding risk55.9 Liquidity and fund ing risk [A udited]Liquidity and fund ing risk is the risk of the Group being unable to fulfilcurrent or future foreseen or unforeseen cash or collateral requirementswithout affecting routine transactions or its financial position. This riskmay arise as a result of total or partial lack of liquidity in certain assetsor to the disappearance of certain funding sources. It may be related tothe bank itself (reputation risk) or to external factors (crisis in certainmarkets).Liquidity and fund ing risk is managed through a global liquidity policyapproved by Group Executive Management. This policy is based onmanagement principles designed to apply both in normal conditionsand in a liquidity crisis. The Group’s liquidity position is assessed on thebasis of internal standards, warning flags and regulatory ratios.LIQUIDITY RISK MANAGEMENT POLICYPOLICY OBJECTIVESThe objectives of the Group’s liquidity management policy are to (i) securea balanced financing mix for the Group’s activities; (ii) ensure that theGroup is always in a position to deliver its obligations to its customers; (iii)ensure that it does not trigger a systemic crisis solely by its own actions;(iv) comply with the standards set by the local banking supervisor; (v)cope with any liquidity crises; and (vi) control its cost of fund ing .ROLES AND RESPONSIBILITIES INLIQUIDITY RISK MANAGEMENTThe Internal Control, Risk and Compliance Committee reports quarterlyto the Board of Directors on liquidity policy principles and the Group’sposition.The Group’s Executive Committee sets the general liquidity riskmanagement policy, including risk measurement principles, acceptablerisk levels and internal liquidity pric ing rules. Responsibility for monitoringand implementation has been delegated to the Group ALM Committee.Dashboard reports are sent to the Group’s Executive Committee monthly,weekly or daily depending on the market environment .Group ALM Committee authorises implementation of the liquidity policyproposed by ALM Treasury, which relies on the principles set by theExecutive Committee. The Executive Committee is notably informed ona regular basis of liquidity risk indicators, stress tests, and the executionof funding program. It is also informed of any crisis situation, and isresponsible for deciding on the allocation of crisis management rolesand approving emergency plans.After validation by Group ALM Committee, ALM-Treasury is responsiblefor implementing the policy throughout the Group. The business line andentity ALM Committees implement at local level the strategy approvedby Group ALM Committee.Group Risk Management (GRM) contributes to defining liquidity policyprinciples. It also provides second-line control by validating the models,risk indicators (including liquidity stress tests), limits and marketparameters used. GRM takes part in the Group ALM Committee and thelocal ALM Committees.CENTRALISED LIQUIDITY RISKMANAGEMENTALM-Treasury is responsible for managing liquidity for the entire Groupacross all maturities. In particular, it is responsible for fund ing andshort-term issuance (certificates of deposit, commercial paper, etc.),for senior and subordinated debt issuance (MTNs, bonds, medium/long-term deposits, covered bonds, etc.), preferred share issuance , andloan securitisation programmes for the retail banking business andCIB’s financing activities. ALM-Treasury is tasked with providing internalfinancing to the Group’s core businesses, operational entities and businesslines, and investing their surplus cash. It is also responsible for buildingup and managing liquidity reserves, which comprise assets that can beeasily liquidated in the event of a liquidity squeeze.52012 Registration document and annual financial report - BNP PARIBAS 303