2007 REGISTRATION DOCUMENT

3 RiskRISK MANAGEMENTexposure in 2007< Contents >3.3 Risk exposure in 20071CREDIT AND C OUNTERPARTY R ISK(See section 5.5 Financial statements – note 4.a. – Credit risk.)2MARKET R ISKVALUE AT R ISK (VaR)VaR calculation methods are continually being improved to factor innew risks arising from changes in the structure of financial marketsand products.Changes in VaR for all of the Group’s trading activities in 2007, based ona 1-day holding period and confidence level of 99%, were as follows:➤CHANGES IN VaR (1 DAY, 99%)IN MILLIONS OF EUROSThe fast-paced growth in the Bank’s capital markets business has resultedin greater risk diversification. The increase in VaR observed during the firsthalf of the year (EUR 31 million on average over the first six months of2007 versus an average VaR of EUR 22 million in 2006) was containeda limited range mainly thanks to the significant effects of the nettingacross risk factors. Between January and June, total VaR was three timeslower than the sum of its components per risk factor. Historical volatilityrose sharply across all markets in the second half of the year in relationto the subprime crisis, automatically triggering an increase in VaR.The Risk-Capital Markets unit continuously tests the accuracy of itsmodel through a variety of techniques including a regular comparisonover a long-term horizon between actual daily losses observed on capitalmarket transactions and 1-day VaR. A 99% confidence level means intheory that the Bank should not incur daily losses in excess of VaR morethan two or three days a year.Despite the severe decline in market conditions over the second halfof 2007, the Bank suffered daily losses in excess of VaR on only twooccasions. This reflects the quality of its risk assessment model as wellas the discipline of its traders in a challenging environment.34567891011802007 Registration document - BNP PARIBAS