2007 REGISTRATION DOCUMENT

3 RiskRISK MANAGEMENTfactorsDETERIORATION OF PRIMARY ANDSECONDARY DEBT MARKET CONDITIONS ANDDECLINE OF ECONOMIC CONDITIONS COULDHAVE A MATERIAL ADVERSE IMPACT ON THEBANK’S EARNINGS AND FINANCIAL CONDITIONSignificant disruptions in the primary and secondary debt markets,and the worsening of overall economic conditions could, at any time,negatively affect the activities, earnings and financial condition offinancial institutions worldwide, including the Bank. The primary effectsof these conditions could be, among others, the following:■ crises in the debt markets are characterized by reduced liquidity andincreased credit risk premiums for certain market participants. Theseconditions, which increase the cost and reduce the availability ofdebt, may continue or worsen in the future. Since the Bank is highlydependent on the availability of credit to finance its operations,disruptions in the debt markets could have an adverse impact on itsearnings and financial condition;■ the secondary debt markets could also face significant disruptionsas a result of reduced demand for loans and asset -backed securities(known as “collateralized debt obligations” or “CDOs”) and increasedinvestor yield requirements for those loans and securities. Fallingproperty prices in the United States and a significant increase in thenumber of subprime mortgages originated in 2005 and 2006 couldaccelerate the increases in mortgage delinquencies and defaults inthe United States. These conditions could also affect other marketssince financial institutions sell assets to meet liquidity requirements.These conditions may affect banking activities in a number of ways,including reducing the availability of securitization markets to financenew loans, reducing performance-based fees in asset managementbusinesses and halting LBO market activity.The reduction in the availability of credit could impact the overall level ofeconomic activity, despite efforts by central banks and economic policymakers to implement measures designed to stimulate the economy.The economic outlook may in turn have a significant negative effect onstock market index values and, consequently, on the value of financialinstruments held by the Bank in its trading portfolio, as well as theoutlook for earning commissions from equity brokerage and capitalmarkets activities and commissions from asset management activities.A SUBSTANTIAL INCREASE IN WRITE-OFFS ORA SHORTFALL IN THE LEVEL OF PREVIOUSLYRECORDED PROVISIONS COULD ADVERSELYAFFECT THE BANK’S OPERATING RESULTS ANDFINANCIAL STRENGTHIn connection with its lending activities, the Bank regularly post reservesfor loan losses, which are recorded in its profit and loss account under cost< Contents >of risk. The Bank’s overall level of provisions is based on its assessment ofprior loss experience, the volume and type of lending being conducted,industry standards, past due loans, economic conditions and other factorsrelated to the recoverability of various loans. Although the Bank uses itsbest efforts to establish an appropriate level of provisions, its lendingbusinesses may have to increase their provisions for loan losses in thefuture as a result of increases in non-performing assets or for otherreasons. Any significant increase in loan loss reserves or a significantchange in the Bank’s estimate of the risk of loss embedded in its portfolioof non-impaired loans, as well as the occurrence of loan losses in excessof the related provisions, could have an adverse effect on the Bank’sresults of operations and financial strength .THE BANK’S COMPETITIVE POSITION COULDBE HARMED IF ITS REPUTATION IS DAMAGEDIn the highly competitive environment arising from globalization andconvergence in the financial services industry, the Bank’s reputation forfinancial strength and integrity is critical to its ability to attract andretain customers. The Bank’s reputation could be harmed if it were to useinappropriate means to promote and market its products and services.The Bank’s reputation could also be damaged if, as it increases its clientbase and the scale of its businesses, the Bank’s comprehensive proceduresand controls dealing with conflicts of interest would fail, or appear tofail, to address potential conflicts of interest properly. Furthermore, theBank’s reputation could be damaged by employee misconduct, a declinein, a restatement of, or corrections to its financial results, as well as anyadverse legal or regulatory action. The loss of business that could resultfrom damage to the Bank’s reputation could have an adverse effect onits operating result and financial strength .AN INTERRUPTION IN OR A BREACH OF THEBANK’S INFORMATION SYSTEMS MAY RESULTIN LOST BUSINESS AND OTHER LOSSESAs with most other banks, BNP Paribas relies heavily on communicationsand information systems to operate. Any failure or interruption or breachin security of these systems could result in failures or interruptions inthe Bank’s customer relationship management, general ledger, deposit,execution and/or loan servicing systems. The Bank cannot provideassurances that such failures or interruptions will not occur or, if theydo occur, that they will be adequately addressed. The occurrence ofany failures or interruptions could have an adverse effect on the Bank’soperating result and financial strength.1234567891011722007 Registration document - BNP PARIBAS