2007 REGISTRATION DOCUMENT
2007 REGISTRATION DOCUMENT 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
RISK MANAGEMENTRisk exposure in 2007 3< Contents >➤COMPARISON OF DAILY LOSSES AGAINST VAR100,000150,0000-50,0002-100,000-150,000301/01/0702/01/0703/01/0704/01/0705/01/0706/01/0707/01/0708/01/0709/01/0710/01/0711/01/0712/01/07Daily losses were reported on 44 occasions in 2007, with average dailylosses remaining below EUR 20 million. Although this represents anincrease on the 2006 figure (daily losses reported on 17 occasions), therise was curbed by the Bank’s active management of risks. Daily losseswere reported on 23 occasions in 2005 and 46 occasions in 2004.STRESS TESTSThe fifteen stress scenarios presented measure the impact on each ofthe risk parameters (interest rate, equities, credit, volatility, currency, etc.)of unlikely but plausible extreme stress events. The resulting level ofpotential losses confirms the Group’s strong resilience to market risks,since none of these worst-case scenarios taken individually have aserious adverse impact on the Bank’s financial strength.➤Profit And LossValue-At-RiskFifteen different scenarios capture a variety of different stresses, asfollows:■ equity market crash triggering a plunge of 15% to 20% in stockmarkets in one trading day, combined with a widening of creditspreads, a fall in commodity markets and unfavourable changes ininterest rates;■ crisis in emerging markets;■ terrorist attack;■ sudden hike in inflation;■ hedge fund crisis, triggered by the bankruptcy of several key playersand leading to a general decline in hedge fund performance, coupledwith corrections on certain markets;■ crisis caused by a pandemic such as post-war Spanish influenza.IMPACT ON CAPITAL MARKET REVENUES SIMULATED FOR 15 EXTREME STRESS SCENARIOSAT 31 DECEMBER 2007 AND 31 DECEMBER 2006 (IN % OF 2007 AND 2006 CAPITAL MARKET REVENUES)45678910112007 Registration document - BNP PARIBAS 81
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RISK MANAGEMENTRisk exposure in <strong>2007</strong> 3< Contents >➤COMPARISON OF DAILY LOSSES AGAINST VAR100,000150,0000-50,0002-100,000-150,000301/01/0702/01/0703/01/0704/01/0705/01/0706/01/0707/01/0708/01/0709/01/0710/01/0711/01/0712/01/07Daily losses were reported on 44 occasions in <strong>2007</strong>, with average dailylosses remaining below EUR 20 million. Although this represents anincrease on the 2006 figure (daily losses reported on 17 occasions), therise was curbed by the Bank’s active management of risks. Daily losseswere reported on 23 occasions in 2005 and 46 occasions in 2004.STRESS TESTSThe fifteen stress scenarios presented measure the impact on each ofthe risk parameters (interest rate, equities, credit, volatility, currency, etc.)of unlikely but plausible extreme stress events. The resulting level ofpotential losses confirms the Group’s strong resilience to market risks,since none of these worst-case scenarios taken individually have aserious adverse impact on the Bank’s financial strength.➤Profit And LossValue-At-RiskFifteen different scenarios capture a variety of different stresses, asfollows:■ equity market crash triggering a plunge of 15% to 20% in stockmarkets in one trading day, combined with a widening of creditspreads, a fall in commodity markets and unfavourable changes ininterest rates;■ crisis in emerging markets;■ terrorist attack;■ sudden hike in inflation;■ hedge fund crisis, triggered by the bankruptcy of several key playersand leading to a general decline in hedge fund performance, coupledwith corrections on certain markets;■ crisis caused by a pandemic such as post-war Spanish influenza.IMPACT ON CAPITAL MARKET REVENUES SIMULATED FOR 15 EXTREME STRESS SCENARIOSAT 31 DECEMBER <strong>2007</strong> AND 31 DECEMBER 2006 (IN % OF <strong>2007</strong> AND 2006 CAPITAL MARKET REVENUES)4567891011<strong>2007</strong> Registration document - BNP PARIBAS 81
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