2007 REGISTRATION DOCUMENT

2007 REVIEW OF OPERATIONS4 OutlookAssets securitised as part of proprietary securitisation transactions thatdo not meet the Basel II eligibility criteria remain in the portfolio towhich they were initially assigned. In this case, BNP Paribas is requiredto hold capital as if they had not been securitised.Capital is calculated in respect of commitments granted by BNP Paribasto securitisation vehicles on behalf of third parties. The calculation isbased on external ratings where possible, or on the supervisory formulain all other cases.As eligible external ratings typically exist for positions acquired in asecuritisation arranged by third parties or amounts granted to thesesecuritisation vehicles, these are included in the calculation of capitalusing the external ratings-based approach.Counterparty riskRegarding counterparty risk, EAD is measured based on an internalassessment procedure which is subsequently integrated within thecredit risk assessment tool. This tool has been used by the Group for thepast ten years and is updated on an ongoing basis. It is based on MonteCarlo simulations which allow analysts to identify likely movementsin exposure amounts. The stochastic processes used are sensitive toparameters (particularly volatility and correlation) calibrated on historicalmarket data. Changes in exposure amounts are calculated up to thematurity of the corresponding transactions.To aggregate exposures, the system takes into account the legalenvironment of each transaction and counterparty, and any netting ormargin call agreements.Market riskAs the new Basel II capital framework does not imply any immediatechanges in respect of market risk, this continues to be calculated by theinternal model used under Basel I. However, the model will be adjustedby 2010 to reflect the sudden risk of default and comply with regulatorychanges.Equity holding riskThe Bank has developed its own model in respect of equity holding risk,under which gross capital requirements are reduced by a portion ofthe unrealised capital gains existing at the date of calculation. Under aprudent approach considered by the Commission Bancaire as complyingwith applicable regulations, these capital gains no longer qualify as partof regulatory capital.Capital to be held against equity investment risk is calculated by assessingfuture market volatility using Monte Carlo simulations. The stochasticprocesses used (equities, and car and property price indexes) are calibratedon historical data. Investments in unlisted companies are treated similarlyto listed investments using the appropriate correlations.Other assetsRegulatory capital requirements in respect of other assets such asproperty, plant and equipment or intangible assets are the same asunder Basel I.Operational risk< Contents >The principles for managing and measuring operational risk are definedcentrally at the level of the Group, and the operational risk model isapplied consistently throughout the organisation.Capital to be held against operational risk is calculated based on dataregarding internal and external losses, and changes in the economicenvironment and in internal control. The calculation also takes intoaccount any analyses of potential risk scenarios.Data on historical or potential risk incidents will be compiled based ona hierarchy of core Group processes and on the organisation of eachbusiness line/country, resulting in a comprehensive and coherent riskreporting process.12345678910111042007 Registration document - BNP PARIBAS