Société Générale / Risk report 2021 - Pillar 3 2020

12 LIQUIDITY RISK LIQUIDITY RESERVE | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 209 LIQUIDITY RESERVE 12.5 The Group’s liquidity reserve encompasses cash at central banks and assets that can be used to cover liquidity outflows under a stress scenario. The reserve assets are available, i.e. not used in guarantee or as collateral on any transaction. They are included in the reserve after applying a haircut to reflect their expected valuation under stress. The Group’s liquidity reserve contains assets that can be freely transferred within the Group or used to cover subsidiaries’ liquidity outflows in the event of a crisis: non-transferable excess cash (according to the regulatory ratio definition) in subsidiaries is therefore not included in the Group’s liquidity reserve. The liquidity reserve includes: central bank deposits, excluding mandatory reserves; p transactions; these include government bonds, corporate bonds and equities listed on major indices (after haircuts). These HQLAs meet the eligibility criteria for the LCR, according to the most recent standards known and published by regulators. The haircuts applied to HQLA securities are in line with those indicated in the most recent known texts on determining the numerator of the LCR; High-Quality Liquid Assets (HQLAs), which are securities that can be p quickly monetised on the market via sale or repurchase non-HQLA Group assets that are central bank-eligible, including p receivables as well as covered bonds and securitisations of Group receivables held by the Group. The composition of the liquidity reserve is regularly reviewed by a special committee comprising the Finance Division, the Risk Division and the Management of the Global Banking and Investor Solutions core business, and is adjusted by authorisation of the Finance Committee. TABLE 107: LIQUIDITY RESERVE (In EURbn) 31.12.2020 31.12.2019 Central bank deposits (excluding mandatory reserves) 154 88 HQLA securities available and transferable on the market (after haircut) 82 81 Other available central bank-eligible assets (after haircut) 7 21 TOTAL 243 190 REGULATORY RATIOS 12.6 The Basel Committee recommends the international implementation of two standard ratios with harmonised parameters to regulate bank liquidity risk profiles: the Liquidity Coverage Ratio (LCR) aims to ensure that banks hold p sufficient liquid assets or cash to survive a significant stress scenario combining a market crisis and a specific crisis and lasting for one month; the Net Stable Funding Ratio (NSFR) is a transformation ratio which p compares funding needs with stable resources over a one-year period. The transposition of Basel 3 into European Union law under CRD4 and CRR1 was published on 27 June 2013. The French transposition was published in the French Official Journal ( Journal officiel ) on 5 November 2014. The LCR regulation issued on 10 October 2014 has since been updated by a Delegated Act which entered into force on 30 April 2020. The corresponding minimum requirement was set at 100% from 1 January 2018. The NSFR requirement is included in the CRR2 as publisehd in June 2019. It will enter into force in June 2021. The required level will stand at 100%. Societe Generale is actively continuing its work on transposing the European prudential legislation (or the Basel text when the European transposition has not been finalised yet) and on translating it into management standards within the Group. The Group manages its liquidity risk through the LCR, the NSFR and liquidity gaps, under stress and under normal conditions of activity, and accumulated (all currencies combined), and this, by making sure at any time that the liquidity is transferable across the main currencies. Since the implementation of the European regulatory LCR requirement in October 2015, Societe Generale’s LCR has consistently stood at over 100%. The LCR was 149% at end-2020 ( vs . 119% at end-2019). The LCR regulatory requirement must be respected by the Group in all currencies but it is also reported in the major currency in US dollars. The Group assessment performed on potential currency mismatch between liquid assets and net outflows shows that the LCR surplus in euros is sufficient to cover the gap in US dollars.