Banca Monte dei Paschi di Siena S p A : Pillar III Report - December 2020

Pillar 3 Disclosure

Update as at

31 December 2020

Pillar 3 Disclosure

Update as at

31 December 2020

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Banca Monte dei Paschi di Siena SpA

Company Head Office in Siena, Piazza Salimbeni 3, www.mps.it

Recorded in the Arezzo-Siena Company Register - Registration no. and tax code 00884060526 MPS VAT Group - VAT no. 01483500524

Member of the Italian Interbank Deposit Protection Fund. Bank Register no. 5274

Parent Company of the Monte dei Paschi di Siena Banking Group, registered with the Banking Groups Register

P I L L A R 3 D E C E M B E R 2 0 2 0

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Index

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1. Risk management objectives and policies. . . . . . . . . . . . . . . . . . . . . . . 13 Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1. Risk Management Approach. . . . . . . . . . . . . . . . . . . . . . . . . . 21
2. Risk Governance in the Montepaschi Group and organization of the Risk Management Function.23
3. Risk Reporting Flows: main features . . . . . . . . . . . . . . . . . . . . . . . 26

1.4	Stress Test: scenarios and methodologies . .	. . . . . . . . . . . . . . .	. . . . . 28
1.5	Risk Management strategies and policies. .	. . . . . . . . . . . . . . .	. . . . . 29
1.6	Corporate Governance . . . . . . . . . . . . . . .	. . . . . . . . . . . . .	30
1.7	Analysis of the Montepaschi Group's Internal Capital and Risk Integration Model .	. . . . . 30
1.8	Credit Risk . .	. . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . 31
1.9	Operational Risk. .	. . . . . . . . . . . . . . . . . . . . . . . .	. . . . . 34
1.10	Market Risk in the Trading Book . . . . . . . .	. . . . . . . . . . . . . . . .	36

1. Counterparty Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2. Interest Rate Risk in the Banking Book. . . . . . . . . . . . . . . . . . . . . . 39
3. Liquidity Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4. Equity Investment Portfolio Risk.. . . . . . . . . . . . . . . . . . . . . . . . 42

1.15 Strategic Risk.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

1. Real Estate Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2. Risk inherent in investment products/services. . . . . . . . . . . . . . . . . . . . 44

1.18 Reputational Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

2.	Scope of application.. . . . . . . . . . . . . . . . . .	. . . . .	. . . . .	.	.	48
3.	Own Funds. . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . .	.	.	. 51
4.	Capital requirements, liquidity ratios and leverage . . . . . .	. . . . .	. . . . .	.	.	. 70
5.	Credit Risk. . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . .	.	.	. 95
	5.1	Credit Risk: general disclosure. . . . . . . . . . . . .	. . . . .	. . . . .	.	.	. 95
	5.2	Credit Risk: Standard approach. . . . . . . . . . . .	. . . . .	. . . . .	. .		. 102
	5.3	Credit Risk: use of the AIRB approach . . . . . . . . .	. . . . .	. . . . .	. .		. 107
	5.4	Credit Risk: credit quality. . . . . . . . . . . . . .	. . . . .	. . . . .	. .		. 144
	5.5	Credit Risk: use of risk mitigation techniques . . . . . . .	. . . . .	. . . . .	.	.	158
6.	Counterparty Risk. . . . . . . . . . . . . . . . . . .	. . . . .	. . . . .	.	.	168
	6.1	Counterparty Risk: general disclosure . . . . . . . . . .	. . . . .	. . . . .	.	.	168
7.	Market Risk . . . . . . . . . . . . . . . . . . . . .	. . . . .	. . . . .	. .		. 183
	7.1	Trading Book Market Risk: general disclosure. . . . . . .	. . . . .	. . . . .	.	.	183

1. Exposure to interest rate risk on positions not included in the trading book. . . . . . . . . . 192
2. Exposures in equities not included in the trading book.. . . . . . . . . . . . . . . . 194
3. Encumbered and unencumbered assets. . . . . . . . . . . . . . . . . . . . . . . 200
4. Exposures to securitisation transactions. . . . . . . . . . . . . . . . . . . . . . . 206

11.1 General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

12. Operational Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 12.1 Operational Risk: general disclosure.. . . . . . . . . . . . . . . . . . . . . . . . 229

Statement of the Chief Executive Officer pursuant to art. 435, e) and f) and Art. 431,
paragraph 3, paragraph 1 of Regulation (EU) no. 575/2013 of 26-06-2013 . .	. . . . . . . .		. 234
Declaration of the Financial Reporting Officer . . . . . . . . . . . . . . . . . . . . .				235
List of Tables.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	236
Appendix 1 - Summary of Information published in line with CRR requirements . .	. . . . .	.	240
Appendix 2 - Details of Information provided in compliance with EBA Guidelines GL 2016/11. .		. 242
Appendix 3 - Details of Information provided in compliance with EBA Guidelines GL 2018/01. .		. 244
Appendix 4 - Details of Information provided in compliance with EBA Guidelines GL 2018/10. .		. 244
Appendix 5 - Details of Information provided in compliance with EBA Guidelines GL 2017/01. .		. 244
Appendix 6 - Details of Information provided in compliance with EBA Guidelines GL 2020/07. .		. 244
Glossary . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . 245
Contacts . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. 263

G R U P P O M O N T E P A S C H I