Société Générale / Risk report 2021 - Pillar 3 2020

9 MARKET RISK MARKET RISK MAIN MEASURES PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 180 The internal IRC and CRM models are subject to similar governance to that of other internal models meeting the Pillar 1 regulatory requirements. More specifically: an ongoing monitoring allows to follow the adequacy of IRC and p CRM models and of their calibration. This monitoring is based at least on a yearly review of the modelling hypotheses. As these metrics are estimated via a 99.9% quantile over a one-year horizon, the low frequency of breaches means that a backtesting as the one performed on VaR model is not possible. In particular, this review includes: a check of the adequacy of the structure of the rating transition - matrices used for IRC and CRM models, a backtesting of the probabilities of default used for these two - models, a check of the adequacy of the models for the dissemination of - recovery rates, spread dissemination and dissemination of basic correlations used in the CRM calculation. Regarding the checks on the accuracy of these metrics: the IRC calculation being based on the sensitivities of each - instrument – delta, gamma – as well as on the level of loss in the event of default (Jump to Default) calculated with the market recovery rate, the accuracy of this approach is checked against a full repricing every six months, such a check on CRM is not necessary as its computation is - performed following a full repricing; these metrics are compared to normative stress tests defined by the p regulator. In particular, the EBA stress test and the risk appetite exercise are performed regularly on the IRC metric. These stress tests consist of applying unfavourable rating migrations to issuers, shocking credit spreads and shocking rating transition matrices. Other stress tests are also carried out on an ad hoc basis to justify the correlation hypotheses between issuers and those made on the rating transition matrix; a weekly analysis of these metrics is carried out by the production p and certification team for market risk metrics; the methodology and its implementation have been initially p validated by the French Prudential and resolution Supervisory ( Autorité de Contrôle Prudentiel et de Résolution – ACPR). Thereafter, a review of the IRC and the CRM is regularly carried out by the Risk Department in charge of the validation of internal models as second line of defence. This independent review process ends with (i) review and approval Committees and (ii) an Audit Report detailing the scope of the review, the tests performed and their outcomes, the recommendations and the conclusion of the review. The model control mechanism gives rise to recurrent reporting to the appropriate authorities. Moreover, regular operational checks are performed on the completeness of the scope’s coverage as well as the quality of the data describing the positions. TABLE 93: IRC (99.9%) AND CRM (99.9%) (In EURm) 31.12.2020 31.12.2019 Incremental Risk Charge (99.9%) Period start 93 317 Maximum value 172 352 Average value 103 192 Minimum value 53 58 Period end 112 83 Comprehensive Risk Measure (99.9%) Period start 95 164 Maximum value 462 211 Average value 116 144 Minimum value 51 73 Period end 70 95